Friday, 2 August 2013

From Johore Tin To Johore Milk

Since acquiring its own customer Able Dairies in October 2011 for RM31 mil, Johore Tin has its revenue doubled and net profit tripled, resulting in more and more cash in its bank and almost 175% rise in its share price.

When dairy products manufacturers grow big, they will produce their own tin. When tin manufacturers grow big, they will produce dairy products. Fair enough. Johore Tin has followed Canone's footstep by venturing into dairy business successfully.

In FY2012 when the contribution of Able Dairies is fully consolidated into Johore Tin's account, its new F&B division has generated more revenue and profit than its core business of tin manufacturing. The revenue of tin and F&B division for FY2012 is RM101mil vs RM164mil, while the net profit stands at RM10.5mil vs RM13.8mil respectively.

Compare to FY2011, Johore Tin FY2012's revenue jumps 84% from RM134mil to RM246mil, and its net profit grows 110% from RM11mil to RM23mil.

       Some of Johore Tin's customers

However, Johore Tin made a not-so-good start for its FY2013. Its revenue and net profit for FY13Q1 drops significantly from the preceding quarter (FY12Q4). This is mainly caused by lower sales from its F&B division. The management has said that this is because of New Zealand drought in that period that has caused a sudden spike in the price of dairy products, which has prompted Johore Tin's customers to withold their orders.

While almost all its tin customers are within Malaysia, about 80% of Johore Tin's dairy products customers come from overseas, mainly in Africa, Middle East and South East Asia. As a third largest tin manufacturer in the country behind Kian Joo and Canone, Johore Tin's tin manufacturing division is only expected to see modest growth. Thus, the future of the company may rely on its F&B division, which is said to possess an opportunity to grow rapidly.

       Products of Able Dairies, never seen all these...

Since F&B division is Johore Tin's core business now, the poor F&B showing in FY13Q1 has directly caused its share price to retreat from RM2.17 to RM1.88 currently. Now the NZ drought is over according to the management, will the F&B division bounce back?

Johore Tin's F&B manufacturing capacity has reached a max since mid 2012 and the management plans to construct a new factory to support its growth, besides squeezing space to install a few more lines in the old factory. With its increasing cash pile and strong balance sheet (RM49mil cash vs RM31mil borrowing at end of Mac 2013), I think it has no problem to finance its capex. It may also give more dividend too.

The important thing is, lets see how well is its F&B division doing in Q2FY13 first.

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