We initiate coverage on Johore Tin Berhad (JTB) with a BUY recommendation. Our target price of RM1.80/share is derived using a sum-of-parts valuation approach. The company’s fundamentals are supported by i) healthy top-line growth, ii) favourable soft commodity prices, as well as iii) healthy balance sheet.

Johore Tin Berhad (JTB) has two main segments, which are the tin manufacturing segment and the F&B segment. Within the tin manufacturing segment, products and services include manufacturing of tin packaging for confectionaries, edible oils, paints, pineapples and others on top of printing services on the tinplates. Meanwhile, the F&B segment involves the manufacturing of condensed and evaporated milk products, both for in-house brands or OEMs. The F&B segment has also expanded the re-packaging milk powders division with additional capacity and a factory was commissioned in early 2017.

Investment thesis:

1.0 Shift in business focus to F&B segment

2.0 Tight inventory management

3.0 Healthy balance sheet

We expect the adjusted net profit to increase by 3.1% - 10.7%% YoY in FY17 to FY19 based on the following assumptions:

• Capacity expansion to 140.0k tonnes - 220.0k tonnes in FY17 - FY19 (vs. 81.2k tonnes in FY16) within the F&B segment.

• Utilisation rate of 40% - 62% in FY17 – FY19 (vs. 85% in FY16) across the F&B segment

• We project milk powder global price of USD2,100/tonne in 2017 (vs. USD2,021 in 2016) and global sugar price of 16.0cents/lbs in 2017 (vs. 18.2cents/lbs in 2016).

• We also estimate China exports tinplates price of USD680/tonne in 2017 (vs. USD673/tonne in 2016).

Source: TA Research - 25 Oct 2017