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Joined Jul 2013
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STOCK: JOHOTIN (7167)

Blog 05 Jul 2013, 9:59:20 AM
Latest write up on 7167 JOHOTIN

[b]Synergistic acquisitions to drive earnings growth.[/b] Johore Tin (share price RM1.86, market cap RM174m, 21% owned by Edward Goh & family) is well known as one of the largest tin can manufacturers in Malaysia. The tin can manufacturing business is a mature yet stable industry given the relatively resilient demand from tin can users, largely in the food industry. However, Johore Tin’s impressive venture into the F&B business (producing sweetened condensed milk and evaporated milk) in Nov11 has proven to be a resounding success as its FY12 earnings surged 107% to RM23m from RM11m in FY11.

[b]Up-and-coming F&B proxy.[/b] Johore Tin acquired Able Diaries in Nov11 for RM31m which came with a profit guarantee of RM7m in FY11 and RM10m in FY12, translating into forward PE multiples of 3-4x at that time. Indeed, Able Diaries’ earnings well exceeded the profit guarantee, largely due to the robust demand for its milk and dairy products in Africa, Middle East and ASEAN. There is vast market potential within ASEAN such as Myanmar, Cambodia and Thailand which are untapped by the group. F&B business now comprises c.70% of Johore Tin’s pretax profit, which leads us to position the company as an up-and-coming proxy to the resilient F&B industry.

[b]Expansion plan set to capture strong demand.[/b] Johore Tin bought a 4-acre land in Teluk Panglima Garang, Klang for RM5.8m in Dec12 to add a new warehouse and factory in view of the space constraint at its existing milk and dairy products manufacturing facility. Able Dairies’ facility has been running at close to full working space capacity, limiting its utilisation to just 65% due to the space constraint. We understand that the new warehouse will add an additional 100k sf which will free up the much needed working space to immediately ramp up Able Diaries’ utilisation while the additional milk canning line will boost its production capacity by 25% from exiting output of 95m cans p.a.

[b]Re-rating on the horizon.[/b] With the potential strong growth prospects coming from its F&B business, we believe that re-rating for Johore Tin is on the horizon. Trading at 7x FY12 PE, Johore Tin is indeed the cheapest consumer stock vis-à-vis its peers like Nestle (32x), Dutch Lady (25x), F&N (24x) and Singapore-listed Etika (24x). We recommend investors to accumulate the stock given its attractive valuation metrics. We derive a fair value of RM2.60 for Johore Tin, based on 9x FY13 EPS, which is at a steep 65% discount to peers average of 26x.


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