Review

• After excluding exceptional items, Johore Tin Berhad’s (JTB) 1QFY18 adjusted net profit of RM5.5mn came in below expectation, at 16% of each TA and consensus’ full-year estimates. This was due to higher-than-expected operating expenses and costs of sales.

• 1QFY18 revenue increased slightly by 1.4% YoY to RM104.0mn on the back of strong contribution from the tin manufacturing segment (+23.7% YoY) from higher sales in printing services as well as edible oil industry. However, this was dragged down by lower revenue contribution in the F&B segment (- 5.5% YoY) due to lower turnover from dairy products. PBT declined by 41.1% YoY to RM7.9mn attributable to one-off gain on disposal of machinery in the 1Q17 within the manufacturing segment (-49.1% YoY) and higher raw material costs (i.e. packaging) within the F&B segment (-32.9% YoY). Note that the adjusted PBT declined by 37.4% YoY after excluding exceptional items.

• QoQ, revenue declined by 10.8% as the F&B segment recorded lower revenue (-16.8% QoQ), which partially offset by increased revenue from the tin manufacturing segment (+8.8% QoQ). The adjusted PBT, however, increased by 39.7% QoQ as the manufacturing segment returned to the black and the F&B segment recorded higher PBT (31.4% QoQ) due to lower advertising and promotional expenses.

• The group declared a single-tier first interim dividend of 1.0sen/share in the current quarter.

Impact

• Reduced our earnings forecasts by 26.8%, 27.9% and 29.8% for FY18, FY19 and FY20 respectively after increasing our costs assumptions.

Outlook

• We believe that FY18 revenue will be driven by: i) ramping up of capacity in the milk-repackaging factory from 25% to 35% utilisation rates; ii) increase in demand for milk-based products domestically and globally and; iii) higher sales from printing services in the manufacturing segment.

• Management guided that tinplates prices are expected to be less volatile moving forward, hence provide some stability to earnings. We maintain our profit margin assumption at 10% level for FY18.

• F&B performance is expected to be resilient in 2H18. However, management is cautious on the uncertainties in the global trade markets as well as volatility in raw material prices like milk-based products. Note that 70% of F&B sales are exported to Asia, Central America, Europe and Africa.

Valuation

• Downgrade our call from Buy to Hold with a lower target price of RM1.02/share (previously RM1.48/share) based on SOP valuation.

Source: TA Research - 24 May 2018