Johore Tin Berhad (JTB) reported RM6.9m in net profit for 2QFY17 (-26.5% YoY). Excluding one-off gain on disposal of machinery of RM3.0m in 1QFY17 and gain on forex, 1HFY17 core net profit stood at RM12.9m, which came in below our expectations at 34.0% of our full-year forecasts. Nevertheless, we keep our earnings estimates at this juncture as we expect JTB to improve its utilisation in dairy segments by 2H of the year. It declared a single-tier 2nd interim dividend of 1 sen. We continue to like JTB for; i) growth opportunities in the milk powder segment, ii) increasing F&B contributions from potential capacity expansion plans in the sweetened condensed and evaporated milk segments, iii) opportunity of growth in the American Continent from new ventures in Mexico, and iv) healthy balance sheet. We maintain our Outperform call and target price of RM1.86 based on SOP valuation.

• Revenue in 2Q17 increased by 7.0% YoY to RM123.4m, owing to increased sales from both its tin manufacturing and F&B segments. Its tin manufacturing division increased 5.1% YoY to RM24.8m due to higher sales in the edible oil tin industry and printing services. Meanwhile, its F&B sales improved 7.5% YoY to RM98.6m because of higher sales from milk powder and dairy product segments. For 1H17, revenue for tin manufacturing and F&B grew by 7.1% and 9.8% YoY respectively.

• Net profit. Pre-tax margin for tin manufacturing in 2Q17 jumped 16.7%, compared to 11.5% in 2Q16, due to higher sales and better margin from printing services. However, pre-tax margin for F&B contracted to 5.2% in 2QFY17 (vs 11.2% in 2Q16), mainly due to allowance for doubtful debt recognised during the quarter and higher forex gain trade settlement recognised in 2Q16. Hence, net profit for 2Q17 declined 26.5% to RM6.9m, bringing its 1H17 net profit to RM17.2m (+24.1% YoY). Excluding one-off gain on disposal of machinery in 1Q17 and forex gain, its core net profit for 1H17 increased 23.3% to RM12.9m, compared to RM10.5m in 1H16.

• Dividend. JTB declared a single-tier 2nd interim dividend of 1 sen. The payment and entitlement date will be determined at a later date. This bring its 1H17 dividend per share to 2.5sen and payout of 53.4% (higher than 1H16’s payout of 13.4%).

Source: PublicInvest Research - 25 Aug 2017