JT International Bhd (Nov 22, RM6.38)
Maintain buy at RM6.40 with fair value of RM7.20: JT International (JTI) recorded a net profit of RM40 million for the nine months to Sept 30. The 9MFY11 result makes up 82% of consensus estimates, and 84% of our full-year forecast. We deem the results to be broadly in line with our expectations as 9M typically accounts for 80% to 86% of 12 months’ earnings. Historically, 4Q is a soft quarter due to post-budget de-stocking.
JTI registered flattish year-on-year (y-o-y) revenue growth for 9MFY11, but net profit contracted marginally by 2%. The lacklustre performance was largely due to an estimated 12% y-o-y decline in cigarette sales volume due to decreased demand experienced in 2QFY11. This was partially offset by: (i) higher average selling prices (post Budget 2011); (ii) higher net margins; and (iii) lower advertising and promotions expenses.
On a sequential basis, revenues increased 9% on improved sales volume but net profit for 3Q surged a higher 31% to RM40 million. This was mainly attributed to higher earnings before interest, tax, depreciation and amortisation (Ebitda) margin which expanded 2.7 percentage points quarter-on-quarter on the back of reduced operating expenses.
We reckon the group successfully clawed back some of the lost market share at the expense of sub-value for money (VFM), predominantly on the back of the Winston label, JTI’s main earnings driver. Sub-VFM resumed its downward trend, with volume for 9MFY11 falling 9% y-o-y. Recall, depressed total industry volume (TIV) earlier this year was severely impacted by higher average selling price and illegal sale of sub-VFM below the minimum prices.
Unlike the previous years, no dividend was declared for this quarter. The management declared a second interim dividend of 15 sen per share (less 25% tax) back in the preceding quarter, bringing year-to-date dividends to 30 sen per share. This accounts for 66% of our FY11F dividend per share forecast as premised on a recently raised dividend payout ratio of 70%.
We are keeping our TIV forecast of -4% for 2011F, and -3% for 2012F. We believe further TIV contractions are imminent, given high levels of illicit cigarettes. As it is, illicit trades are still a high 37.3% (March to May 2011), according to statistics from the Confederation of Malaysian Tobacco Manufacturers. However, this would be partially offset by the positive status quo of tobacco excise duty.
We make no change to our “buy” recommendation on JTI with a discounted cash flow-based fair value of RM7.20 per share. Valuation is undemanding, with forward earnings trading close to its five-year historical price-earnings ratio average of 12.5 times. The stock offers an attractive dividend yield of 7% per year, well underpinned by its burgeoning cash pile of RM190 million. — AmResearch, Nov 22
This article appeared in The Edge Financial Daily, November 23, 2011.
Maintain buy at RM6.40 with fair value of RM7.20: JT International (JTI) recorded a net profit of RM40 million for the nine months to Sept 30. The 9MFY11 result makes up 82% of consensus estimates, and 84% of our full-year forecast. We deem the results to be broadly in line with our expectations as 9M typically accounts for 80% to 86% of 12 months’ earnings. Historically, 4Q is a soft quarter due to post-budget de-stocking.
JTI registered flattish year-on-year (y-o-y) revenue growth for 9MFY11, but net profit contracted marginally by 2%. The lacklustre performance was largely due to an estimated 12% y-o-y decline in cigarette sales volume due to decreased demand experienced in 2QFY11. This was partially offset by: (i) higher average selling prices (post Budget 2011); (ii) higher net margins; and (iii) lower advertising and promotions expenses.
On a sequential basis, revenues increased 9% on improved sales volume but net profit for 3Q surged a higher 31% to RM40 million. This was mainly attributed to higher earnings before interest, tax, depreciation and amortisation (Ebitda) margin which expanded 2.7 percentage points quarter-on-quarter on the back of reduced operating expenses.
We reckon the group successfully clawed back some of the lost market share at the expense of sub-value for money (VFM), predominantly on the back of the Winston label, JTI’s main earnings driver. Sub-VFM resumed its downward trend, with volume for 9MFY11 falling 9% y-o-y. Recall, depressed total industry volume (TIV) earlier this year was severely impacted by higher average selling price and illegal sale of sub-VFM below the minimum prices.
Unlike the previous years, no dividend was declared for this quarter. The management declared a second interim dividend of 15 sen per share (less 25% tax) back in the preceding quarter, bringing year-to-date dividends to 30 sen per share. This accounts for 66% of our FY11F dividend per share forecast as premised on a recently raised dividend payout ratio of 70%.
We are keeping our TIV forecast of -4% for 2011F, and -3% for 2012F. We believe further TIV contractions are imminent, given high levels of illicit cigarettes. As it is, illicit trades are still a high 37.3% (March to May 2011), according to statistics from the Confederation of Malaysian Tobacco Manufacturers. However, this would be partially offset by the positive status quo of tobacco excise duty.
We make no change to our “buy” recommendation on JTI with a discounted cash flow-based fair value of RM7.20 per share. Valuation is undemanding, with forward earnings trading close to its five-year historical price-earnings ratio average of 12.5 times. The stock offers an attractive dividend yield of 7% per year, well underpinned by its burgeoning cash pile of RM190 million. — AmResearch, Nov 22
This article appeared in The Edge Financial Daily, November 23, 2011.
