Review

• After excluding exceptional items, Johore Tin Berhad’s (JTB) 9M18 adjusted net profit of RM24.6mn (-13.8% YoY) came in above ours and consensus estimates at 97% and 104% respectively due to lower-than-expected costs of sales.

• Revenue declined by 4.2% YoY to RM344.0mn in 9M18 on the back of higher sales from Tin Manufacturing segment (+11.4% YoY) due to increase in sales from biscuit industry, edible oil industry and printing services. This was offset by lower revenue from F&B segment (-8.3% YoY) due to lower sales from dairy-based products. PBT declined by 1.5% YoY to RM30.2mn due to lower PBT from Tin Manufacturing segment (-19.5% YoY) due to one-off machinery disposable gains in the previous quarter. This was supported by higher PBT from F&B segment (+12.3% YoY) due to better product mix with higher product margins.

• QoQ, revenue increased by 7.7% to RM124.4mn in 3Q18 due to positive contributions in the Tin Manufacturing (+13.5% QoQ) and F&B (+6.0% QoQ) segments. Consequently, PBT more than doubled to RM16.5mn from RM5.8mn on the back of F&B segment increase by more than fourfold due to i) higher product margins from better product mix; ii) weaker Ringgit providing higher translations; and iii) lower marketing expenditures. This was partially offset by slight decline in Tin Manufacturing (-0.5% QoQ) segment.

• The group declared a third single-tier interim dividend of 1.5sen/share in the current quarter.

Impact

• Increase our earnings forecasts by 7.1% to 8.7% for FY18 to FY20 after lowering our costs of sales assumptions.

Outlook

• We believe that FY18 revenue is expected to 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 as well as; iii) higher sales from printing services in the manufacturing segment.

• Management guided that price of raw materials i.e. tinplates are expected to be less volatile hence providing more stability in market. Sales growth is expected to be driven by increasing demands from the biscuit industry, edible oil industry and printing services.

• F&B segment performance is expected to be resilient in 2H18 and FY19 with Ringgit expected to be weaker therefore supporting export sales. Note that 70% of F&B sales are exported to Asia, Central America, Europe and Africa.

Valuation

• Maintain our Buy call with higher target price of RM1.25/share (previously RM1.16/share) based on SOP valuation. We also like the company for its attractive dividend yield of projected average dividend yield of 6.0% between FY18 and FY20.

Source: TA Research - 29 Nov 2018