Review

• Johore Tin Berhad’s (JTB) 1HFY19 adjusted net profit of RM19.6mn (+66.8% YoY) came in within expectations, accounting for 54% and 55% of our and consensus’ full-year estimates respectively. The group declared a second single-tier interim dividend of 1.5sen/share (vs 2QFY18: 0.5sen), bringing the YTD DPS of 3.0sen.

• 1HFY19 revenue jumped 28.7% YoY to RM282.6mn underpinned by stronger sales from: i) the F&B segment (+31.9% YoY to RM217.0mn) owing to robust sales of dairy-based products, alongside ii) the Tin Manufacturing segment (+19.2% YoY to RM65.6mn) due to higher sales from printing services. Meanwhile, PBT was up 82.8% to RM25.0mn due to higher sales, better gross margin and improved operational efficiencies i.e. admin alongside marketing and distribution expenses. In terms of profitability, F&B segment’s PBT margin improved by 5.3%-pts YoY, which we attribute to higher economies of scale. On the flipside, Tin Manufacturing margin dropped by 6.3%-pts YoY, which the group said was largely affected by factory relocation costs.

• 2QFY19 vs 1QFY19. 2QFY19 revenue was flattish as improvement in F&B (+1.6% QoQ) was offset by slight decline of revenue in the Tin Manufacturing segment (-3.7% QoQ). However, PBT shown a decline of 7.3% QoQ, in which management noted was due to a water supply disruption in 2QFY19 that has led to higher production cost and lower PBT in the F&B segment (- 20.2% QoQ).

Impact

• We make no changes to our earnings forecasts.

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 is projected to be strong driven by domestic capacity expansion and strategic JV in Mexico. With regards to input cost, we opine that management would proactively manage its procurements and price negotiations.

• There are >60% of F&B sales exported to Asia, Central America, Europe and Africa. As such, we believe weakening Ringgit is expected to support export sales.

Valuation

• Reiterate Buy on JTB with a higher TP of RM1.80/share. We value the F&B and tin manufacturing segments at 15x and 8x CY20 EPS, respectively.

Source: TA Research - 30 Aug 2019