Johore Tin to see earnings growth in 2H20

The group has 1.5 months of dairies backlog orders to be fulfilled along with a target to catch up on productions in the period

by ASILA JALIL / pic credit: johoretin.com.my

JOHORE Tin Bhd’s earnings in the second half of this year (2H20) is expected to increase on the back of high demand for its products, TA Securities Holdings Bhd revealed in a research note yesterday.

TA Securities stated that Johore Tin has 1.5 months of dairies backlog orders to be fulfilled along with a target to catch up on productions in 2H20.

“As such, we believe 2H20 earnings would be strong with a possibility of coming in mildly above our financial year 2020 estimate of RM40.7 million.

“We keep our current estimates as a conservative measure considering the operating environment remains fluid with the presence of Covid-19,” TA Securities equity research analyst Jeff Lye said in the note.

The research firm reiterated its ‘Buy’ call on Johore Tin with an unchanged target price (TP) of RM2.10 per share based on price-to-earnings (P/E) of 14 times its food and beverage’s (F&B) calendar year 2021 (CY21) earnings and eight times its tin manufacturing’s CY21 earnings.

“We like the group for its robust future earnings growth underpinned by capacity expansion, steady dividends and undemanding valuations,” it said.

Johore Tin rose eight sen to RM1.61 at close yesterday, valuing the company at RM499.9 million.

Johore Tin’s financial results were affected by the Covid-19 outbreak as its 1H20 revenue and core earnings dropped by 21% year-on-year to RM223.3 million and 13.8% to RM16.9 million respectively.

The company’s sequential earnings in the second quarter of 2020 (2Q20) were remarkable with core earnings surged 61.1% quarter-on-quarter to RM10.4 million against 1Q20.

“We gathered that Johore Tin’s customers were initially taking conservative stance on procurement in 1Q20, but began placing new orders since 2Q20 as their sell-through improved.

“We believe the strong recovery could also be attributed to Johore Tin’s little exposure to hotels, which were hit worst, while restaurants, coffee shops and home consumptions, which are Johore Tin’s core channels experienced strong recovery.”

The progress of the company in Mexico was disrupted by an entry restriction for key engineers to visit Mexico to physically instal and commission machines.

Johore Tin then resorted to virtual commissioning with local engineers to set up the lines under the guidance of key engineers via video calls, said Lye.

This enabled the group to successfully instal the packaging lines in Mexico, and its next goal is to instal equipment for dairies production.

“Management is targeting its first milk production in November 2020 and commercialisation by December 2020 or early 2021.

“This new Mexican joint-venture plant is expected to be a catalyst that permits Johore Tin to enjoy a favourable duty structure in the Americans region, coupled with easy access to raw materials and logistics arrangements,” added Lye.