Stock Name: JTINTER
Company Name: JT INTERNATIONAL BHD
Research House: OSK
JT International Bhd
(March 29, RM6.78)
Maintain buy at RM6.69 with target price of RM7.30: The Japan earthquake-tsunami has reportedly caused production disruptions to JT. According to media reports, JT's factories at Kita-Kanto, Koriyama and Tomobe have suspended operations owing to damage to their facilities, including the Tagajo factory of Nihon Filter, a JT group company. The extent of the damage is currently being assessed.
It is also reported that operations at JT's sales offices in Morioka, Sendai, Mito and Utsunomiya, including the Sendai order processing center and some distribution depots (in Aomori, Morioka, Sendai, Mito and Utsunomiya) belonging to another company in the group, TS Network, were disrupted due to non-production-related damages.
In addition, Japan's planned power cuts are also expected to disrupt operations at the company's production and sales offices.
Presently, JTI has yet to receive any indications from its parent in respect of what it can do to offer assistance to its Japanese parent. However, the production shortage arising from damage to JT's plant may require the Japanese parent to outsource part of its production to JTI in the short term.
Nevertheless, leaf composition and taste of the products is likely to be assessed before this happens since the blends for both the Japanese and Malaysian markets differ. The damage inflicted on JT's Japan plants will require funds for repairs and reestablishing distribution channels. Unlike Malaysia where the tobacco distribution lines are outsourced or leased, Japan's tobacco manufacturers directly own supply depots and distribution points.
This reinforces our earlier assumption that JTI may, in the near term, declare special dividends so that it can channel funds back to its parent JT, which owns 60.4% of JTI. Based on our earlier analysis, we see JTI potentially declaring gross and special dividends of up to 110 sen per share for FY11.
Previously, fund repatriation from companies in Malaysia with parents in Japan were double-taxed, whereby the dividends declared at the offshore company pay tax in the host country as well as home country (Japan).
To illustrate, should JTI declare gross dividends amounting to 100 sen per share, the cash to be paid to JT may only amount to 60 sen per share, after deducting'' Malaysian and Japanese taxes based on statutory tax rates of 25% and 20% respectively.
However, double-taxation was abolished since 2009, whereby 95% of earnings of offshore companies are no longer taxed in Japan and such offshore companies only have to pay tax once in their country of operation, while their parent company will be taxed only on their own income.
This essentially means that JTI would now be more at ease in declaring dividends compared with previously.
We maintain our 'buy' recommendation on JTI with its fair value intact at RM7.30. This offers a potential upside of 9.1% and a gross dividend yield of 4.5%.
Although we do not include a possible special dividend in our earnings estimates, we would like to bring attention to the company's growing cash pile, which could support a special dividend for this financial year or the next. ' OSK Research, March 29
This article appeared in The Edge Financial Daily, March 30, 2011.
Company Name: JT INTERNATIONAL BHD
Research House: OSK
JT International Bhd
(March 29, RM6.78)
Maintain buy at RM6.69 with target price of RM7.30: The Japan earthquake-tsunami has reportedly caused production disruptions to JT. According to media reports, JT's factories at Kita-Kanto, Koriyama and Tomobe have suspended operations owing to damage to their facilities, including the Tagajo factory of Nihon Filter, a JT group company. The extent of the damage is currently being assessed.
It is also reported that operations at JT's sales offices in Morioka, Sendai, Mito and Utsunomiya, including the Sendai order processing center and some distribution depots (in Aomori, Morioka, Sendai, Mito and Utsunomiya) belonging to another company in the group, TS Network, were disrupted due to non-production-related damages.
In addition, Japan's planned power cuts are also expected to disrupt operations at the company's production and sales offices.
Presently, JTI has yet to receive any indications from its parent in respect of what it can do to offer assistance to its Japanese parent. However, the production shortage arising from damage to JT's plant may require the Japanese parent to outsource part of its production to JTI in the short term.
Nevertheless, leaf composition and taste of the products is likely to be assessed before this happens since the blends for both the Japanese and Malaysian markets differ. The damage inflicted on JT's Japan plants will require funds for repairs and reestablishing distribution channels. Unlike Malaysia where the tobacco distribution lines are outsourced or leased, Japan's tobacco manufacturers directly own supply depots and distribution points.
This reinforces our earlier assumption that JTI may, in the near term, declare special dividends so that it can channel funds back to its parent JT, which owns 60.4% of JTI. Based on our earlier analysis, we see JTI potentially declaring gross and special dividends of up to 110 sen per share for FY11.
Previously, fund repatriation from companies in Malaysia with parents in Japan were double-taxed, whereby the dividends declared at the offshore company pay tax in the host country as well as home country (Japan).
To illustrate, should JTI declare gross dividends amounting to 100 sen per share, the cash to be paid to JT may only amount to 60 sen per share, after deducting'' Malaysian and Japanese taxes based on statutory tax rates of 25% and 20% respectively.
However, double-taxation was abolished since 2009, whereby 95% of earnings of offshore companies are no longer taxed in Japan and such offshore companies only have to pay tax once in their country of operation, while their parent company will be taxed only on their own income.
This essentially means that JTI would now be more at ease in declaring dividends compared with previously.
We maintain our 'buy' recommendation on JTI with its fair value intact at RM7.30. This offers a potential upside of 9.1% and a gross dividend yield of 4.5%.
Although we do not include a possible special dividend in our earnings estimates, we would like to bring attention to the company's growing cash pile, which could support a special dividend for this financial year or the next. ' OSK Research, March 29
This article appeared in The Edge Financial Daily, March 30, 2011.
No comments:
Post a Comment