Stock Name: JTINTER
Company Name: JT INTERNATIONAL BHD
Research House: MAYBANK
JT International Bhd
(Jan 12, RM6.25)
Maintain 'buy' at RM6.08 with higher target price of RM8.10 (from RM6.50): JTI's share price rose 28% over 2010 to close at RM6.05 at the year-end. Whilst this was commendable, we believe that 2011 could outperform 2010 for two simple reasons.
First, local crop failures will result in cost savings for JTI. Second, JTI's build-up of cash reserves suggests that valuations ex-cash will lag market valuations once more. Our updated discounted cash flow-valuation rises to RM8.10 (+34%) although we have left earnings forecasts unchanged.
Tobacco crop failures in 2009 and 2010 mean that manufacturers like JTI have no choice other than to source their leaf supply from overseas. Local tobacco leaf production fell by 56% y-o-y to 3.25 million tonnes in 2009 from 7.36 million tonnes in 2008, and was estimated to have either stayed largely unchanged or risen just marginally in 2010.
This is positive for JTI, given that local leaf was as much as 50% more expensive than similar leaf sourced from neighbouring countries.
Our unchanged forecasts point to a net cash per share position of RM1 and RM1.42 by end-2011 and end-2012, assuming an unchanged gross dividend payout of 30 sen per share per annum. Recall however, when JTI had net cash of RM1.11 per share at end-1Q08 as reported in May 2008, it proceeded to declare a special dividend of 28 sen per share followed by a proposed capital repayment of 75 sen per share in July 2008.
B
In our estimation, with a shrinking addressable market, there is every chance that JTI may undertake a similar exercise and return similar amounts some time between end-2011 and before end-2012.
With its track record of growing sales volumes and profits albeit within a shrinking industry, we would argue that JTI would not be out of place trading at a narrow 10%-20% discount to wider market valuations of circa 14 times 2012 earnings.
At its last done price of RM6.08, this implies a forward PER of just 10 times, with a CAGR of 44% for its net cash per share over the 2010-12 period. Our higher target price of RM8.10 is supported by our updated DCF valuation (WACC: 7.1%, g: -0.5%) which also translates into just 13.1 times 2012 PER. ' Maybank IB Research, Jan 12
This article appeared in The Edge Financial Daily, January 13, 2011.
Company Name: JT INTERNATIONAL BHD
Research House: MAYBANK
JT International Bhd
(Jan 12, RM6.25)
Maintain 'buy' at RM6.08 with higher target price of RM8.10 (from RM6.50): JTI's share price rose 28% over 2010 to close at RM6.05 at the year-end. Whilst this was commendable, we believe that 2011 could outperform 2010 for two simple reasons.
First, local crop failures will result in cost savings for JTI. Second, JTI's build-up of cash reserves suggests that valuations ex-cash will lag market valuations once more. Our updated discounted cash flow-valuation rises to RM8.10 (+34%) although we have left earnings forecasts unchanged.
Tobacco crop failures in 2009 and 2010 mean that manufacturers like JTI have no choice other than to source their leaf supply from overseas. Local tobacco leaf production fell by 56% y-o-y to 3.25 million tonnes in 2009 from 7.36 million tonnes in 2008, and was estimated to have either stayed largely unchanged or risen just marginally in 2010.
This is positive for JTI, given that local leaf was as much as 50% more expensive than similar leaf sourced from neighbouring countries.
Our unchanged forecasts point to a net cash per share position of RM1 and RM1.42 by end-2011 and end-2012, assuming an unchanged gross dividend payout of 30 sen per share per annum. Recall however, when JTI had net cash of RM1.11 per share at end-1Q08 as reported in May 2008, it proceeded to declare a special dividend of 28 sen per share followed by a proposed capital repayment of 75 sen per share in July 2008.
B
In our estimation, with a shrinking addressable market, there is every chance that JTI may undertake a similar exercise and return similar amounts some time between end-2011 and before end-2012.
With its track record of growing sales volumes and profits albeit within a shrinking industry, we would argue that JTI would not be out of place trading at a narrow 10%-20% discount to wider market valuations of circa 14 times 2012 earnings.
At its last done price of RM6.08, this implies a forward PER of just 10 times, with a CAGR of 44% for its net cash per share over the 2010-12 period. Our higher target price of RM8.10 is supported by our updated DCF valuation (WACC: 7.1%, g: -0.5%) which also translates into just 13.1 times 2012 PER. ' Maybank IB Research, Jan 12
This article appeared in The Edge Financial Daily, January 13, 2011.
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