Review

• Johore Tin Berhad’s (JTB) 1QFY19 adjusted net profit of RM11.0mn (>100% YoY) came in within expectations, accounting for 29% and 30% of ours and consensus’ full-year estimates respectively. The group declared a first singletier interim dividend of 1.5sen/share (vs 1QFY18: 1.0sen).

• 1QFY19 revenue surged 35.7% YoY to RM141.0mn on the back of stronger sales from: i) the F&B segment (+44.9% YoY to RM107.6mn) owing to higher sales of dairy-based products, as well as ii) the Tin Manufacturing segment (+12.6% YoY to RM33.4mn) due to higher sales from printing services. Adjusted PBT doubled to RM12.9mn due to higher sales, better gross margin and improved operational efficiencies i.e. admin alongside marketing and distribution expenses. Profitability wise, F&B segment’s PBT margin improved by 4.0%-pts YoY, in which we attribute to have benefited from scale due to higher sales volume and price adjustments.

• Sequentially, 1QFY19 revenue was lower than the record quarterly revenue (-10.3% QoQ against 4QFY18) owing to softer F&B segment’s sales (-13.1% QoQ). Consequently, 1QFY19 adjusted PBT recorded a decline of 27.2% QoQ.

Impact

• We input FY18 audited numbers and trim our FY19/20/21 earnings forecasts marginally by 2.7/1.5/3.1%.

Outlook

• Tin Manufacturing segment is becoming increasingly competitive, though the softer tinplate price is likely to provide margin stability in the near-term.

• F&B sales volume are projected to be strong driven by domestic capacity expansion and strategic JV in Mexico. While current high skimmed milk powder price may eventually sip into JTB’s input costs and normalise its margins, we opine management would proactively manage its procurements and price negotiations.

Valuation

• Reiterate Buy on JTB with a higher TP of RM1.80/share (previously: RM1.57/share) as we roll forward the valuation to CY20. We value the F&B and tin manufacturing segments at 15x and 8x CY20 EPS, respectively. We reduced the ascribed F&B valuation by 1x PER to account for the current soft market sentiment on the F&B industry due to fluctuation in raw materials price.

Source: TA Research - 30 May 2019