Dividend Yield Stocks (Part 2) – JT International

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Aug 08 2007
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StockTube will continue with the second part of the mini project in presenting the next candidate for stock investors who are looking anxiously for good dividend yield stocks. If you’re a new reader, you can find the first part of the article on dividend yield stock at the end of this article. So, without wasting much time, let’s go and digest JT Internation (JTI).

JT International (KLSE: stock-code 2615) is an operating division of Japan Tobacco Inc. (TYO: JTI, 2914), handling the international production, marketing and sales of the group’s cigarette brands. JT (Japan Tobacco) is the world’s third largest international tobacco manufacturer, after its’ acquisition of Britain’s Gallaher Group Plc (LON: GLH) for $14.7 billion in the biggest-ever foreign acquisition by a Japanese company back in Dec 2006. JT manufactures internationally recognised cigarette brands including Camel, Winston, Mild Seven and Salem and its total tobacco net sales amounted to US$36.5 billion (US$1 = ¥117.47) in the fiscal year ended March 31, 2006.

JTI’s Fundamental

I don’t think much need to be explained on the business of tobacco or cigarette in Malaysia. If you’re reading this article, chances are you might be one of the cigarette-addict who couldn’t kick-off the smoking habit. Regardless of how many times the government raised the tax on tobacco, the cost will be passed down to consumers and the smokers in turn appear to be able to find ways to absorb it.

JTI’s turnover has been impressive registering healthy increase in revenue from 2002 until 2006 when the price war kicked in among the players. As a result the revenue was slight lower compare to 2005 but still higher than 2004. Nevertheless profits are still in 3-digits figure with over RM123 million for the financial year 2006.
Gross and net earnings per share (eps) are still commendable despite the pressure from the Health Ministry’s aggressive campaign in combating the smokers. Return on shareholders’ fund has been on the uptrend as well, recording net 11.7% (2002), 16.8% (2003), 18.8% (2004), 19.3% (2005) and 17.0% in 2006. Not many businesses out there that could present such a consistent returns, never mind that the tobacco is killing the smokers. Hey, don’t blame me for being cruel as even the Malaysian government through its EPF (Employees Provident Fund) is the single largest shareholder with 12.40 percent stake after the JT International Holding (60.37%).

Technical Analysis at a Glance

The stock is currently struggling to stay above its’ support level of RM3.96 per share. Since the highest price of RM4.40 recorded for the fiscal year 2006, the share had plunge to the lowest of RM3.72 per share before rebounded to current level. Trading volume nevertheless has been low, and with JTI holding more than 60% stake, the downside is rather limited.

Dividend Analysis

The gross and net dividend declared so far has been attractive. Considering that JTI has declared the same amount of dividend since 2004, the management might realized that the competitiveness in the sector is escalating – both from the government and direct competitors itself. Nevertheless the return of about 7.5% in dividend is definitely more attractive than putting your money in the fixed-deposit.
The management is expected to announce the same quantum of dividend, RM0.30 per share, for the current financial year 2007. On the bonus note, if you believe the stock would hold on above the support of RM3.96 per share, now could be the excellent period for you to invest in the stock as it could have hit the bottom already.

JTI’s Challenges

Looking forward, tobacco’s industry does not have too much of a problem especially in country like Malaysia where it’s rare to see smokers hauling the company to court due to health problem. The real problem starts when the government began to play around with the idea of slapping high tax on tobacco or cigarette while letting the illegal cigarettes flourishing. JTI Malaysia has recently claimed that illegal cigarettes now accounted for about 25 percent of the domestic cigarette market.

This year could be a nightmare for tobacco industry. Early in July 2007, the competitor British American Tobacco (BAT) announced the BAT group decided to increase cigarette prices as a result of the 25 percent increase in excise duty, ad valorem component, sales tax, distributor and retailer margin and inflationary cost of doing business. The action by Malaysian government to increase the excise duty (a pack of 20 cigarettes by 60 cents to RM3.00) caught everyone off-guard to which it could encourage consumers to switch to illegal and exceptionally low-priced cigarettes.

Earlier, the government had step-in to set the minimum cigarette price after tobacco companies were engaged in price-war selling certain brands of cigarettes below cost to attract teenagers. The fact remains that the number of smokers will continue to increase. It’s a matter of how many packs are these people going to burn on a daily basis.

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You may want to consider NTPM and Bintulu Port for yields.
NTPM – sells tissue paper – Premier brand ( the one you see at the rear window of cars in malaysia )
Bintulu Port – concession style business

Just sharing my thoughts

thanx for sharing …

I just discovered yr site n find it very helpful for me to learn about stocks in BURSA.Thanks!

May I have your latest commends in jtinter, what is the 12 months outlook for this stock? Thank you

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