JOHOTIN (FV RM1.51 - BUY) Company Update: More Room For Upside

Stock Name: JOHOTIN
Company Name: JOHORE TIN BHD

Research House: OSK

Price Call: BUY

Target Price: 1.51

 Since we initiated coveragein Oct 2011, Johore Tin Bhd's (JTB) share price has rallied by some 38.5%,propelled by its stronger-than-expected 4Q11 earnings. Its strong earnings werelargely due to contributions from its newly acquired dairy product businesswhose future prospects remain bright. Despite the strong rally, the stock isstill trading at an attractive 5.4x FY12 earnings compared to an average of7.5x FY12 earnings for its peers. Given its attractive fundamentals and valuation,we reckon JTB could be a potential M&A target. We reiterate our BUY callwith an unchanged FV of RM1.51 based on our SOP valuation.

Charging like a bull. JTB's share price has rallied by some 38.5% since we initiated coverageon the stock in Oct last year. The rally was largely due to itsstronger-thanexpected earnings in 4Q11, buoyed by strong earnings from itsnewly acquired business, a dairy product manufacturing firm  called Able Dairies (ADSB).  The acquisition came with a net profitguarantee of RM7m in FY11 and RM10m in FY12, and given the strong demand forcondensed milk in third-world countries as a substitute for milk, we remainpositive on the prospects of this business going forward.

Balance sheet intact. Incorporating ADSB's balance sheetinto the picture, JTB's net gearing ratio stood at 0.12x as of 4QFY11, whileits debt-to-equity ratio stood at 0.42x. We think that the group is poised tobe in a net cash position in FY12, given its robust near-term profitability and ability to pare down its debt.

Valuation still attractive. Despite the strong rally, JTB ismerely trading at 5.4x FY12 earnings compared to its peers (such as Can-One andKian Joo) which are trading at an average of 7.5x FY12 earnings. With our FV atRM1.51, JTB offers a potential upside of 39.8% based on its last traded priceof RM1.08.

Maintain BUY. Given its attractive valuation and low marketcap of RM75.6m, we think that the company could likely be a potential M&Atarget. Nonetheless, even if there is a lack of any corporate exercise in thenear term, the stock remains a strong BUY purely from a fundamental standpoint.We are reiterating our BUY recommendation on JTB with a FV of RM1.51, premisedon: (i) 6.5x FY12 earnings for its tin can manufacturing business, and (ii)8.0x FY12 earnings for its dairy product manufacturing business.

Source: OSK188

Stock Overview - JOHOTIN - 6 Mar 2012

Stock Name: JOHOTIN
Company Name: JOHORE TIN BHD

Research House: JUPITER

Price Call: BUY

Target Price: 1.18

JOHOTIN ( 7167 : 0.955 ) : Targeting 1.18

Description
Tin containers

Resistance : 1.18
Support : 0.91

RSI of 73
RSI is overbought

STOCHASTIC
It is overbought

TREND INDICATOR

Comment
Following the recent consolidation breakout, it is likely to head higher to 1.18. Trading Strategy
Buy. Stop loss is at 0.91


Source:Jupiter Securities Research 6 March 2012

JOHOTIN (FV RM1.51 - BUY) FY11 Results Review: Sweet Ending

Stock Name: JOHOTIN
Company Name: JOHORE TIN BHD

Research House: OSK

Price Call: BUY

Target Price: 1.51

Johore Tin Bhd's (JTB) revenue and core net profit exceededour expectations by 11.8% and 62.1% respectively bolstered by stronger-than-expectedsales from its dairy products manufacturing division and stronger profitmargins as prices of milk powder had softened in 2H11. We remain bullish on theprospects of its dairy products manufacturing business as we expect its sales tobe strong this year. Based on our SOP valuation of JTB's tin can manufacturingbusiness at 6.5x FY12 EPS and dairy products manufacturing at 8x FY12 EPS, ourBUY call is maintained with our FV at RM1.51.

Better than expected.  JTB's revenue of RM134.2m and core net profitof RM10.7m exceeded our expectations by 11.8% and 62.1% respectively due tostronger-thanexpected sales from its dairy products manufacturing division andbetter margins for its products as prices of food commodities such as milkpowder softened in 2H11. EBITDA grew 171.4% q-o-q and 52.2% y-o-y while EBITDAmargins strengthened 39.8% q-o-q and 8.4% y-o-y.

Reaping benefits fromits acquisition immediately.  Despitebeing able to recognize two months of profits from its newly acquired company (Able Dairies), we gather that coreearnings from its dairy products manufacturing division accounted for RM3m ofthe RM6.3m reported in 4Q11. The stronger-than-expected sales was due tostronger demand from third world countries as condensed milk is seen as acheaper alternative to milk in those countries. Also, margins from the businesswere strong as milk powder prices had softened slightly in 2H11.

Earnings forecastmaintained. While introducing our number for FY13, we  maintain our earnings forecast for FY12 as weexpect a slower 1H12 for its tin can manufacturing business due to seasonalityreasons while  buyers for its condensedmilk may demand  lower prices movingforward due to the competitive nature of the business.

Maintain BUY. Intandem with our positive view on the prospects of the group's newly acquiredbusiness, we continue to like the group as its new business will drive earningsfor both its tin can business and dairy products manufacturing business. OurBUY recommendation is maintained based on our SOP valuation, which gives riseto a FV of RM1.51, premised on i) 6.5x FY12 EPS for its tin can manufacturingbusiness and ii) 8.0x FY12 EPS for its dairy products manufacturing business.The stock which is merely trading at 4.1x FY12 PER offers an 84.1% upside basedon its last closing price.

Source: OSK188