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
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