Review

• Johore Tin Berhad’s (JTB) 9MFY19 adjusted net profit of RM34.6mn (50.8% YoY) was above expectations, accounting for 82% of our and consensus’ full-year estimates. The positive variation was due to lowerthan-expected operational expenses amidst economies of scale and lower- than-expected tax rate.

• The group declared a third single-tier interim dividend of 2.0sen/share (vs 3QFY18: 1.5sen) bringing YTD DPS of 5.0sen.

• 9MFY19 revenue jumped 23.9% YoY to RM426.0mn underpinned by remarkable sales from: i) the F&B segment (+24.8% YoY to RM324.9mn) owing to bumped up sales of dairy-based products following capacity expansion, alongside ii) the Tin Manufacturing segment (+20.8% YoY to RM101.1mn) due to higher demands for its printing services. PBT was up 49.6% to RM45.2mn owing to i) higher sales, ii) economies of scales and iii) improved operational efficiencies. Regards to profitability, F&B segment’s PBT margin improved by 3.4%-pts YoY due to benefit of scale from higher sales volume. However, Tin Manufacturing margin dropped by 3.0%-pts YoY which the group said was largely affected by factory relocation cost incurred in 2QFY19.

• Sequentially. 3QFY19 PBT spiked up by 67.6% QoQ due to improved Tin Manufacturing’s printing sales and absence of factory relocation cost alongside lower F&B’s production cost upon resolving water supply disruption that occurred in 2QFY19.

Impact

• We bump-up our FY19/20/21 earnings by 9.2/6.5/6.6% as we reduce our operational expenses and tax rate assumption. Consequently, adjust our FY19/20/21 DPS assumption to 7.0/7.0/7.5 sen from 6.0/6.5/7.0 sen.

Outlook

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

• F&B sales volume has been robust and is expected to be strong driven by recent domestic capacity expansion and the eventual commencement of Mexican plant. With regards to input cost, we opine management would proactively manage its procurements and price negotiations.

Valuation

• Reiterate Buy on JTB with a higher TP of RM2.15/share (previously RM2.00/share) with an unchanged valuation (F&B and tin manufacturing segments valued at 15x and 8x CY20 EPS, respectively)

Source: TA Research - 29 Nov 2019