Review

• Johore Tin Berhad’s (JTB) 9MFY17 earnings came in below ours and consensus estimates’ full-year estimates at 56% and 55% respectively. This was due to higher-than-expected operating costs within the manufacturing segment and unexpected allowance for doubtful debts within the F&B segment.

• 9M17 adjusted net profit declined by 10.2% YoY to RM22.0mn after excluding an one-off gain on disposable of machinery of RM3.3mn. Segmentally, the adjusted profit for the tin manufacturing segment declined by 17.8% YoY due to higher operating costs, despite higher sales of 9.7% YoY from the edible oil tin industry. The adjusted net profit for F&B declined by 11.9% YoY due to allowance for doubtful debts despite revenue increased by 11.6% YoY.

• Adjusted net profit for 3QFY17 improved by 17.6% QoQ to RM8.1mn as revenue increased 7.7% QoQ to RM132.9mn. Segmentally, the tin manufacturing segment made a loss of RM0.4mn as compared to a profit of RM3.0mn in the previous quarter due to higher tinplate price. Meanwhile, the adjusted profit for the F&B segment increased by 29.2% QoQ as there was higher sales from dairy products which increased by 8.0% QoQ.

• The group declared a third interim dividend of 0.5sen/share in the current quarter.

Impact

• We downgrade our earnings forecast by 23.0% and 11.9% for FY17 and FY18 respectively after adjusting JTB’s operating costs level.

Outlook

• We believe that FY18 earnings will be driven by i) ramping up of capacity for the recently extended milk-repackaging factory from 25% to 35% utilisation rate, ii) increase in demand for milk-based products and iii) higher sales from printing services in the manufacturing segment.

• Management guided that they are wary of the uptrend global prices of tinplates, which could drag profit margins for the manufacturing segment. However, milk-based commodity prices are looking favourable which will fare well with the F&B segment earnings.

Valuation

• Maintain our BUY call on JTB with lower target price of RM1.48sen/share (previously RM1.80sen/share) based on SOP-valuation. Downside risks to our call are i) slower-than-expected contributions from ramping up of capacity for re-packaging of milk powder business, ii) lower-than-expected export sales and iii) further unexpected allowance for doubtful debts.

Source: TA Research - 29 Nov 2017