Stock Name: JOHOTIN
Company Name: JOHORE TIN BHD
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
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