Monday, January 25, 2016

The next Hybrid Giant ~ Johoretin

1st of all, Happy Thaipusam to all my friends that are celebrating and Happy holiday to those that are not celebrating. It’s glad that all the counters we blog are still doing ok and hit our target price and don’t forget about D&O that we blog before too!
It’s been quite a while that I didn’t blog due to the busyness of my job, today I am taking the opportunity of Thaipusam holiday to share with you 1 of the research that I’m doing. This company is Johotin. The company has been transforming where it have diversified itself from Tin industry to F&B.
The reason we are looking into this company is because this company is earning USD and they are selling food that are essential to human such as milk powder. On the other hand, they have also got a grow factor which is their newly built factory that is about to operate. This will help to boost the capacity of the company and we will see a jump on their profit which will causes the Investment bank to rerate the company. As a result, we are 1 step ahead of them and that’s how retailer can beat the market.

Business Overview
·        Johoretin is mainly involved in the manufacturing of various tins, cans, other containers, the printing of tinplates and also manufacturing and selling of milk and related dairy products via its subsidiaries.
·         Products include biscuit tins, edible oil and vegetable ghee cans, plastic jerry cans, paints and chemical cans, sweetened/evaporated milk and other processed food cans.
·         One of the three largest tin can producers in Malaysia, though smaller than both Kian Joo and Can One. 
Segments
1Q14
2Q14
3Q14
1Q15
2Q15
3Q15
Tin-can
25.1
25.3
25.13
23.7
24.9
25.0
F&B
44.3
37.8
70.85
77.0
93.1
81.9
Investment holding
0.0
0.0
3.292
0.0
1.0
3.8
Total revenue
69.4
63.1
99.3
100.7
119.1
110.8

Segments
1Q14
2Q14
3Q14
1Q15
2Q15
3Q15
Tin-can
3.4
3.3
-0.8
1.3
2.7
-1.0
F&B
4.5
-3.4
1.9
5.2
7.0
0.4
Investment holding
-0.3
-0.5
-0.4
-0.4
-0.5
-0.5
Total operating profit
7.6
-0.5
0.7
6.1
9.2
-1.1


Investment merits
1.     Banking on the F&B segment
·         Recall back in Oct 2011, JTB acquired its dairy product manufacturing business through the acquisition of Able Dairies SB (ADSB).
·         Meanwhile, 80-85% of its products are exported to countries such as West Africa (50-60% of sales) and South East Asia while the remaining 15-20% are for local sales. There is strong underlying demand for condensed milk in third-world countries as a substitute for milk as it is a cheaper alternative.
·         Management is expecting revenues from sweetened condensed and evaporate milk to hover around RM160-180m for the next 2 years, which mainly driven by increased demand from the African region.
·         Current utilisation rates for their plant stands at 85%, and the group will eventually move some of its operations to its new factory to free-up space. Nonetheless, expansion plans for its condense and evaporated milk segment has not been discussed.
·         NP margins for exports stands at around 7-8% while for local is about 10%.
·         Overall, the group sells 180-200 containers (from 120-150 containers back in 2011).

2.     A new revenue stream – milk powder repacking (infant, growing up and whole milk powders) – sell as retail packs
·         Currently, Johoretin is importing formulated milk powder and outsourcing their repacking to third party sellers to sell to third world countries. Unfortunately, due to its capacity and facility constraints the group.
·         PBT margins are currently thin for this segment at 1-2% and revenue approximately RM100-120m/year.
·         Nonetheless, the group’s upcoming new facility, which would cater for its milk powder repacking segment will be completed by Feb-March 2015 and fill be running on utilisation rates of 25%. We understand that the new capacity is able to do 3k tonnes of repacking and the group will be able to formulate the repack the milk powder in-house.
·         Management expects break-even point to be at utilisation rates of 35-40% and expects to ramp up capacity with higher margins of 3-4% by 2H16.
·         This will target the lower-to-middle segment and customers will also cater mostly to South East Asia and Africa (most of its customers are the group’s existing customers).

3.     Steady tin can manufacturing business – business as usual
·         Moving forward, revenue from its tin can business is expected to grow organically at 2-4% and will also grow in tandem with its dairy product manufacturing business.
·         Main clients are Kraft and Lee Pineapple.
·         We understand that the group is working with a potential client with a few projects in the pipeline for its tin can business but no concrete plans as of now.



Small talk
Recently there are some market talks saying the 4th Quarter result will be as good as the 2nd quarter result. If this were to be true, then the total EPS for the company will be 4.27 + 7.16 + 3.52 + 7 = 21.95.
(we are not 100% confirm with the rumors, but its good to take a look whether what will happen if it were to be true)

Since the company is a hybrid of Tin and F&B industry, hence we give a conservative calculation of 15 times PE.
21.95* 15 = 329.25

As a result, we might see Johotin to go RM3.29 if it is fully value at 15 times PE.

However, don’t forget about the uncertainties of current choppy market, as a result, I think RM2.5 will be my 1st target and expect it to go higher with its result on 2nd Quarter.

To those risk taker out there, you may also take a look on their warrant which you may do some leveraging. However, please do some homework on it. 

Anyhow, this might not happen if the market gone haywire, so please monitor yourself and have a trading plan. Always remember to take care your RISK!

May all the HUAT be with us!
Regards
Big Canon Finance


Disclaimer: The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions

Thursday, December 17, 2015

Ocean of Cash... part 3...

A lot of members have started to ask whether "Why do Big Canon like OCNCASH so much?

Well, we will explain to U the rational behind. However, as we writing this article past few days, the share price have had a great run today. Congratulations to our readers!

All is well with Ocean of cash.. 


Looking at the past few days, global market had tumbled as we are 1 step closer to the FED's FOMC meeting where Malaysia market are not spared too. Does this mean there is no more stock that worth to look into already?


Well.. as we mentioned before, there will be window dressing and its finally here.. 


As we look back at what happen on August, we saw that most of the stock had came down when the index took a nose-dive. However, this doesn't last long as those stocks that are benefited from the weak Ringgit and strong USD such as those furniture counters and export oriented counters had rebounded strongly and they are hitting new high recently as strong USD are pushing the profit of these companies to new high. 
Ex: Hevea, Pohuat, Homeritz, VS, LCTH.


On the other hand, we've started to see plastic counters are also hitting new high with their profit as the cost of their raw material "resin" which is derive from Petroleum had hit new low together with the Crude price. On the other hand, these companies had also export their product hence strong USD coupled with low raw material cost which had boosted their profit and share price to new high. 
Ex: Pbplastic, SCGM, SLP, Scientx


Looking at the current situation, International Crude oil price is hitting 7 years low in the past week while RM is now at 4.3+ VS USD. We are not sure whether will Crude oil hit below USD 30 per barrel but at least it is now below 40 USD per barrel which will help to lower down the raw material cost. On the other hand, the rate hike is almost certain which is will bring back the strong USD for mid term.

As a result, Strong USD and low raw material cost will continue to be the theme of the market as long as the Ringgit is still weak coupled with low crude oil price. Where lots of those gem will be discovered by the market. 


Talking back about OCNCASH, some of our members get to interview the top management from the company (prefer not to disclose). As we well aware there are 2 segment for the company.


FELT Division 

1. Oceancash have 3 lines where 2 in Malaysia and 1 in Indonesia and the new factory in Indonesia to commence operation in final quarter of 2015, where the new factory will ultimately house their production line and doubling their existing capacity from 150 to circa 300 tonnes per month. The increase in capacity will help to increase the revenue of the company too.

In Malaysia, they indirectly supplied 100% of felt in Panasonic's aircond. On the other hand, they also export to countries like Australia, Thailand, Philippines, 20% of sales are based in USD.

2    2.  The export sales to Thailand is healthy and it picked up in the second half of 2015. The decision of setting up production in Thailand will result in higher sales due to the nature of the automotive OEM business there.  
3
      3. They expect the slow car sales in Malaysia to affect their felt business in 2015, however they expect the overall business to be unaffected due to the increased sales in Aircond industry coupled with increase export sales.

      4. They have 2 kind of felt where 1 is resinated felt (use for engine cover) and non-resinated felt. The low crude price had brought down the cost of this segment, though the growth in this segment is minimal but the margin had went up due to lower cost. This will help to increase the profit from this segment.


      5. There are only 3 companies that produce felt in South East Asia where 1 is in Thailand and 1 is OCNCASH and another 1 is in Nilai.


    Non - Woven Division

    1. The nonwoven segment is also a beneficiary from the low crude price as the raw material is related to crude oil. As a result, we will see increase in profit margin that boost the profit.

    2.  2 in 1 nonwoven product is the current trend where it has several factors to fuel the growth of OCNCASH.
 
    3. The company had modified their machines to increase the capacity for nonwoven production where this had increased their air-through non woven capacity by 100 tonnes/ month.

    4. They are supplying their non-woven product to hygiene business producer such as those famous brand (can't put the name here). They are producing femine care products such as sanitary pads, party liners. breast pads as well as adult diapers. Most of the diapers are their clients except Mamipoko.

    5. The utilization rate of the production is 80% at the moment after getting more orders from customers recently.


   The management had also share there they are the beneficiary of strong USD as they are doing export as well as low crude oil price.  These are just the theme that we are looking for, on the other hand this company have also got a production line expansion story where the production line will increase by 30%.


  On the other hand, we also understand that the management is quite keen and have met a lot of fund managers. As a result, we saw that 1 of the fund had appeared in top 30 shareholder list. This can be check from the bloomberg portal which is only available to those corporate guys. 
   From the picture u can see that there are 2 funds that have invested into OCNCASH, where U can see at number 11 that AmAsia Pacific Equity Income have just invested in 31st October 2015. Looking at the date, we guess the cost of the fund is 36 cents and 37 cents.

 Looking at number 17, we saw KAF Tactical Fund have just invested in 28th February 2015. The cost is about 30 cents.

 Another thing is that the company have paid dividend recently, where this had open the road for some funds to invest in them, this is because some of the fund can only buy shares with dividend. We believe the management had open the road for fund to invest in them. As a result, we can monitor closely whether will there be any DBT or placement take place.

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    Summary

    1. OCNCASH has a theme of Lower raw material cost due to lower Crude Oil Price
    2. Beneficiary of Strong USD as they have 70% revenue is from exporting segment. 
    3. The expansion of production line which help to boost the top and bottom line. 
    4. Changing listing from Ace market to Main market. 
    5. There are fund that invested in them and we believe this is just the beginning. 
    7. The good result of NTPM had causes the share to move, which we believe this will causes OCNCASH to get re-rated as this counter is now trading at 10 times annualized PE. 

   We remain our TP of 50 cents for mid term and long term is 60 cents. 



May all the HUAT be with us!
Regards
Big Canon Finance


Disclaimer: The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions