PETALING JAYA: Strong production output supported by a high order visibility and the expected commercialisation of the Mexican plant are factors that will push for higher earnings for Johore Tin Bhd (JTB) going forward.

JTB’s has plans to rebrand (Able Farms) and position the product towards markets that are under-penetrated and target the low-to-medium income customer groups.

TA Research believes proper rebranding is critical for JTB’s growth.

JTB recently rolled out a new portfolio of nutritional segment products, which includes milk formulas targeted to meet the nutritional needs of infants and kids (Able-Lac) as well as postpartum women (Able-Mama).

On the Mexico plant where it has a joint venture (JV) arrangement, the commercialisation is expected by early-2021.

TA Research expects a continuous ramp-up in production capacity to a level similar to JTB’s Malaysian condensed milk capacity of around 120,000 tonnes per annum.

JTB aims to achieve breakeven with a 30% utilisation rate supported by ready customers through its key partner, Calkins, Burke & Zannie de Mexico S A de C V in the first year of operations.

Subsequent to that, JTB would tap on surrounding regions for new orders and raise the plant’s utilisation rate towards the 60%-90% range over a few years.

However, TA Research believes in a more gradual ramp-up in production to about a 50% utilisation rate in financial year 2022 (FY22).

This will likely generate about a RM7mil associate contribution, it said.

“Nonetheless, we believe the Mexican JV plant would be a strong catalyst to JTB, given the favourable duty structure in the Americans region, coupled with better sourcing and logistic arrangements,’’ it said.

It said, upon achieving an optimal utilisation rate, serving the American region via its Mexican plant is expected to generate greater profit margin than the current export arrangement from the Malaysian operations. JTB believes that FY20’s full-year dairy output would be on par if not better than FY19.

TA Research said that sales visibility for early-2021 would remain strong as JTB has about 1.5 months of dairies backlog order to be fulfilled. It has a “buy” call with a target price of RM2.60 a share. PublicInvest Research retains its “outperform’’ call at RM2.20 a share.