KUALA LUMPUR: Public Investment Bank initiated coverage on Johore Tin Bhd with an "outperform" call and a target price of RM1.86, implying a 36.8% upside from its last traded price.
Johore Tin's management expects the utilisation rate of its new milk powder packing factory to increase from 35% in FY17 to up to 70% in FY19.
Public Investment Research estimates that the segment generated an operating profit of c.RM2mil to RM3mil in Q1FY17 at the current capacity utilisation of 15% to 16%.
At 75% utilisation, operating profits may grow exponentially to between RM50mil to RM55mil, although the research house notes that this might take three to four years to attain.
Also, profit from its subsidiary, Able Food, may potentially double the group's bottom line.
Johore Tin has plans to perform upgrades to its machinery along production lines for the sweetened condensed and evaporated milk businesses over the next six to eight months. This may boost capacity by about 10% which Public Investment Research estimates has the potential to increase revenue by RM16mil to RM22mil, and net profit by RM1.5mil to RM2mil in FY18-19F.
A proposed 40% joint venture via Able Diaries Mexico, S.A.P.I de C.V. for the condensed milk business may also offer room for growth.
"We understand that the JV will break even immediately after its commissioning, with the initial production taken up by existing customers from Mexico, Central America and US.
"With a similar annual capacity as in Malaysia, we expect to see some financial contributions to the Group from this JV in 2019 onwards. Growth prospects are exciting consider the size of the domestic market in Mexico as well as its neighboring regions which dwarves that of Malaysia," says the research house.
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