Review

• After excluding exceptional items, Johore Tin Berhad’s (JTB) 1H18 adjusted net profit of RM11.8mn came in within our expectation at 47% of our fullyear forecast but below consensus estimates at 44%.

• 1H18 revenue declined by 2.9% YoY to RM219.5mn mainly dragged by: 1) sales contraction within the F&B segment (-7.1% YoY) due stronger Ringgit to US Dollar during the period, dampening export sales; 2) lower sales from dairy products. This was partially offset by the rise in sales within the tin can manufacturing segment (+12.8 YoY) on the back of increased demand from the i) biscuit industry; ii) edible oil industry; and higher contributions iii) from the printing services. PBT declined by 38.4% YoY to RM13.7mn attributable to higher operational costs.

• QoQ, revenue increased by 11.2% to RM115.6mn mainly coming from higher sales from the F&B segment (+21.5% QoQ) as demand increased. This was partially offset by lower sales in Manufacturing segment (-14.6% QoQ), which we believe is due to lower sales volume. PBT decreased by 27.5% QoQ to RM5.8mn mainly dragged by decline from F&B segment (-58.5% QoQ), which we believe is from higher packaging costs. This was partially mitigated by higher PBT from Manufacturing segment (+28.4% QoQ) attributable to higher margin from increased in sales price.

• The group declared a second single-tier interim dividend of 0.5sen/share in the current quarter.

Impact

• No change to our earnings forecasts.

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 rate; ii) increase in demand for milk-based products domestically and globally and; iii) higher sales from printing services in the manufacturing segment.

• Note that the Sales and Service Tax (SST) of 10% sales tax on manufactured goods is expected to marginally increase tax costs within the Manufacturing division as it accounts for approximately 16% of the group’s costs of sales. Whereas milk-based products are exempted from SST hence we see immaterial impact within the F&B division. On the demand side, we see no change as products sold are inelastic to change in price being stapled goods.

• F&B performance is expected to be resilient in 2H18 as weakening Ringgit is expected to support export sales. Note that 70% of F&B sales are exported to Asia, Central America, Europe and Africa.

Valuation

• We upgrade the target price to RM1.15/share (previously RM1.02/share) based on SOP valuation after rolling forward our valuation to CY19 EPS. Upgrade our call from Hold to Buy as we believe that the stock is currently undervalued.

Source: TA Research - 30 Aug 2018