Yesterday, Johore Tin Berhad (JTB) announced that it has awarded a construction contract to GT-Max Construction Sdn. Bhd. through its wholly owned subsidiary, Able Dairies Sdn. Bhd. (ADSB). This is to build a unit of one storey factory connected to three storey office building, a unit of guardhouse and waste chamber as well as one unit of electrical substation for a total sum of RM14.0mn. We are neutral on this news as this is a part of the group’s long-term strategic plan to enhance its F&B division. We make no change to our earnings forecast for FY18 and maintain Buy on JTB with an unchanged SOP valuation of RM1.48/share.

Factories Within F&B

According to announcement, GT-Max won the contract by tendering the lowest bidding price. The project is expected to complete in 4Q18, spanning a built-up area of around 81.5k sq ft. The new factory and office are located on the same area as the existing F&B plants in Teluk Panglima Garang. Currently, JTB has two factories in Teluk Panglima Garang for; i) production of condensed milk and evaporated milk under ADSB; and ii) repackaging of milk powder factory under Able Food Sdn. Bhd. (AFSB). The distance between the two factories are about 300m away from each other located on Jalan Helang. Note that ADSB has been running since 2007 while AFSB was commissioned in early-2017. We believe the new factory is earmarked for future capacity expansion. We do not expect the plant to kick start production until JTB fully ramps up production in its Mexico plant in FY19.

No Major Impact

We raise our CAPEX assumption for FY18 by RM15.0mn to RM38.2mn for the new plant. No change to our FY18 earnings forecast but we reduce FY19 and FY20 earnings forecasts by 1.8% and 1.2% respectively due to increase in depreciation.

Recommendation

Maintain BUY on JTB with unchanged SOP-valuation of RM1.48sen/share based on 16x F&B earnings and 8x tin manufacturing earnings for CY18.

Source: TA Research - 16 Mar 2018