Johore  Tin’s  1QFY14  earnings  were  in  line  with  our  expectations, making up 24% of  our full-year forecast. This was mainly attributed to higher contributions from its F&B division,  as well as better operating efficiencies However, we remain wary,  given the murky outlook  for  the tin  industry  as  well  as  the  softening  in  consumer  spending.  Maintain SELL, with an unchanged FV of MYR1.38.

• Results in line.  The company’s  1QFY14 revenue of MYR61.5m (-4.9% q-o-q; +18.7% y-o-y)  was attributed to higher contributions from its F&B division,  which  saw  revenue  surge  42.3%  y-o-y  to  MYR43.2m.  PBT  at its tin manufacturing segment contracted 17.1% to MYR3.4m mainly due to  forex  fluctuations,  while  that  in  its  F&B  division  expanded  69%  to MYR4.5m  due  to  better  operating  efficiencies.  Overall,  the  company’s 1QFY14 earnings of MYR5.1m (+10.4% q-o-q; -8.8% q-o-q) were in line with our estimates, accounting for 24% of our forecast.
• Margins  expand.  EBIT  margin  rose  4.4%  q-o-q  and  0.1%  y-o-y  to 12.8%, while PBT margin improved 3.4% q-o-q and 0.2% y-o-y to 12.4%. Both  segments  posted  lucrative  margins,  especially  the  tin manufacturing division, whose PBT margin jumped  to 18.7% (from 9.6% in  4QFY13)  due  to  better  cost  controls ,  while  PBT  margin  at  its  F&B division ticked up  to 10.4% (from 9.9%). Moving forward, we continue to expect commodity prices to increase in the near term and expect a slight margin compression at its tin manufacturing division.
• Forecasts  and  key  risks.  With  the  1QFY14  results  being  in  line,  we make no major changes to our forecasts. The key risks include: i) volatile commodity prices,  and ii) lower demand arising from weaker consumer consumption.
• Investment  case.  Given  the  murky  outlook  for  the  tin  industry  and softening consumer spending  owing to the impending implementation of GST, the company may potentially see downside risk to earnings should commodity  prices  continue  on  the  uptrend.  This,  coupled  with  the increase  in  electricity  tariffs,  could  potentially  eat  into  the  company’s bottomline.  In view of the  limited catalysts, we maintain our SELL call ,with an unchanged FV of MYR1.38, based on the existing 6x FY14 EPS. Note that the stock is currently trading at +1SD of its historical mean.

Source: RHB