Stock Name: JOHOTIN
Company Name: JOHORE TIN BHD
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
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