Johore Tin Bhd’s (JTB) revenue and core net profit exceeded
our expectations by 11.8% and 62.1% respectively bolstered by stronger-than-expected
sales from its dairy products manufacturing division and stronger profit
margins as prices of milk powder had softened in 2H11. We remain bullish on the
prospects of its dairy products manufacturing business as we expect its sales to
be strong this year. Based on our SOP valuation of JTB’s tin can manufacturing
business at 6.5x FY12 EPS and dairy products manufacturing at 8x FY12 EPS, our
BUY call is maintained with our FV at RM1.51.
Better than expected. JTB’s revenue of RM134.2m and core net profit
of RM10.7m exceeded our expectations by 11.8% and 62.1% respectively due to
stronger-thanexpected sales from its dairy products manufacturing division and
better margins for its products as prices of food commodities such as milk
powder softened in 2H11. EBITDA grew 171.4% q-o-q and 52.2% y-o-y while EBITDA
margins strengthened 39.8% q-o-q and 8.4% y-o-y.
Reaping benefits from
its acquisition immediately. Despite
being able to recognize two months of profits
from its newly acquired company (Able Dairies), we gather that core
earnings from its dairy products manufacturing division accounted for RM3m of
the RM6.3m reported in 4Q11. The stronger-than-expected sales was due to
stronger demand from third world countries as condensed milk is seen as a
cheaper alternative to milk in those countries. Also, margins from the business
were strong as milk powder prices had softened slightly in 2H11.
Earnings forecast
maintained. While introducing our number for FY13, we maintain our earnings forecast for FY12 as we
expect a slower 1H12 for its tin can manufacturing business due to seasonality
reasons while buyers for its condensed
milk may demand lower prices moving
forward due to the competitive nature of the business.
Maintain BUY. In
tandem with our positive view on the prospects of the group’s newly acquired
business, we continue to like the group as its new business will drive earnings
for both its tin can business and dairy products manufacturing business. Our
BUY recommendation is maintained based on our SOP valuation, which gives rise
to a FV of RM1.51, premised on i) 6.5x FY12 EPS for its tin can manufacturing
business 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 based
on its last closing price.
Source: OSK188
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