JOHOTIN (FV RM1.70 - BUY) 1QFY12 Results Review: Hitting The Sweet Spot

Johore Tin (JTB)’s annualized  revenue and core net profit  came in spot on with our expectations, accounting for 97.8% and 100.0% of our estimates respectively. All in all, 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 kept at RM1.70.

Spot on.  JTB’s annualized revenue and core net profit were spot on within our expectations, accounting for 97.8% and 100.0% of our estimates respectively. The EBITDA margin shrank to 10.3% this quarter compared to 15.0% in the preceding quarter, while the EBIT margin shrank to 7.9% this quarter compared to  14.4% in the preceding quarter. The margin compression was mainly attributed to an increase in operating costs and decrease in selling prices.

Tin business performed as expected.  JTB’s tin can manufacturing recorded a lower profit before tax of some RM1.58m compared to RM3.19m in the previous year due to higher raw material prices and increase in operating costs. As highlighted previously, we anticipate a slower 1H12 for its tin can manufacturing business due to seasonality but we expect demand to strengthen in 2H12.

Dairy product manufacturing business to improve.  JTB acquired the dairy product manufacturing business with a net profit guarantee of RM10m for FY12. We note that its dairy product manufacturing business recorded a profit of some RM2.44m  this quarter, mainly attributed to lower selling prices due to the softening prices of raw materials. Management added that there was no taxation on its profits for its dairy product manufacturing business this quarter as the company has an export tax credit which was not recognized last year. Nonetheless, since we expect demand to increase accordingly with the lower selling prices, we remain positive that the acquired company will be able to deliver its profit guarantee of RM10m this year.

Maintain BUY. All in all, we continue to like the stock given the strong prospects of the group moving forward, which is further sweetened by its still-attractive valuation. We believe the company will see further upside once its expansion plan is firmed up. We are reiterating our BUY recommendation on JTB with a FV of RM1.70, premised on its 12-month forward earnings – 6.5x PER for its tin can manufacturing business and 8.0x PER for its dairy product manufacturing division.

Source: OSK