Johotin: Finally Game Over?

Johore Tin FY15Q1 Financial Result

JOHOTIN (RM mil)	FY15Q1	FY14Q4	FY14Q3	FY14Q2	FY14Q1
Revenue	90.8	104.7	90.7	58.8	61.5
Gross Profit	14.6	16.0	11.7	5.7	13.3
Gross %	16.1	15.3	12.9	9.7	21.6
PBT	6.1	6.6	4.0	-0.5	7.6
PBT%	6.7	6.3	4.4		12.4
PATAMI	4.0	5.2	2.9	-0.3	5.1
Tin Rev	20.9	24.7	21.1	24.8	21.5
Tin PBT	1.3	4.4	1.3	3.3	2.4
F&B Rev	69.9	79.9	69.6	34.0	39.9
F&B PBT	5.2	3.0	3.0	-3.4	5.4
Total Equity	184.7	179.9	175.5	174.4	174.8
Total Assets	328.8	323.6	252.8	253.6	237.2
Trade Receivables	42.0	70.5	39.4	44.3	38.5
Inventories	148.2	125.0	81.8	74.1	63.1
Cash	28.9	25.5	31.1	38.7	40.5
Total Liabilities	144.1	143.6	77.2	79.0	62.3
Trade Payables	14.8	54.5	16.1	18.6	13.6
ST Borrowings	95.0	58.8	35.6	32.9	20.2
LT Borrowings	9.4	10.5	11.7	12.9	14.1
Net Cash Flow	3.4	-12.7	-7.1	0.6	2.2
Operation	-26.7	-28.7	-9.0	-6.3	4.4
Investment	-6.5	-12.3	-6.7	-2.5	-0.5
Financing	36.5	28.3	8.7	9.4	-1.6
Dividend paid	0.0	1.9	1.9	0.0	0.0
EPS	4.27	5.59	3.15	-0.27	5.44
NAS	1.98	1.94	1.88	1.87	1.87
D/E Ratio	0.41	0.24	0.09	0.04	Net C

At first glance, Johotin's latest FY15Q1 result is rather disappointing to me, as I expect it to better FY14Q4.

Its PBT and PATAMI are not only poorer than FY14Q4, they are even lower than FY14Q1.

Nevertheless, it registers net forex loss of RM1.8mil in current quarter, compared to RM1.7mil loss and RM0.3mil loss in FY14Q4 and FY14Q1 respectively.

PATAMI drops QoQ and YoY mainly due to more distribution to non-controlling interest in current quarter.

Anyway, gross margin slowly climbs to 16% in the last 4 quarters even though it is still a distance from 20+% in the pre-quality issue era.

Johotin's last quarter result was saved by its tin manufacturing segment but this time it is the other way round.

Its revenue (-15%) and especially PBT (-70%) in tin segment tumble because of high material cost (purchased in USD) and lower demand.

However, PBT in F&B segment surge 77% compared QoQ despite a 13% drop in revenue which is very good. This is mainly due to lower material cost.

The most disturbing part in Johotin's FY15Q1 report is its short term borrowings which has shot up by 60% in just 3 months time.

As a result, net debt/equity ratio increase to 0.41. Will it go up further?

This looks like game over...

The increase in debt is mainly contributed by poor operating cash flow, even though levels of trade receivables and payables have "normalized" after a sudden surge in previous quarter.

The problem lies in its inventories, which has increased by 135% in one year, and never seem to go down!

There is no explanation on the inventories in its quarterly report but luckily, its FY14 annual report has been released at the same time, and we can know what those inventories are made up of.

From the inventories break down, it seems like the cash are tied up in "Goods-in-transit". It is not finished goods stored in the warehouse.

Raw materials increase by 50% as I expect the company to take opportunity on recent low dairy price.

I don't know why there is a sudden surge of "Goods-in-transit" from RM1.4mil to RM49.9mil in one year. Is it because its export sales experience a sudden surge, or there is some issue during the transport?

Anyway, I feel that this is more positive than negative as those goods should have been sold and just not reaching its destination yet.

Sooner or later they will turn into receivables and then cash. This may explain why the management took only short-term loan.

I'm not too sure whether sales are included in revenue or not if the customers have not receive the goods. If it is not, then those "goods-in-transit" are like "unbilled sales".

Personally I think that those "goods in transit" should be considered sold thus already included in the revenue.

Another positive for Johotin is that it has successfully penetrated into Central America market in 2014 which has contributed as much as RM40mil in revenue.

As the location of Central America is quite far away, is this the reason for the high "goods-in-transit"?

Basically Johotin's investors are waiting for the new milk packaging factory to start its operation.

It is earlier reported that it will be ready in Q2 of 2015 but now it seems like it will be postponed to Q3.

So, investors still need to wait until Q3 or Q4 to see more positive financial result.

Johotin will pay 3.5sen dividend for its FY14 which represents 25% payout from PATAMI. This is almost the same payout ratio compared to FY13 (5sen).

Dividend yield of FY14 stands at 2.3% at share price of RM1.55.

If we annualize FY15Q1 EPS of 4.27sen, projected EPS of FY15 will be 17.1sen. At current share price of RM1.55, it is trading at forward PE ratio of 9x.

As I predict its FY15 EPS to be higher than 17.1sen, I will continue to hold Johotin's shares.

For me, the risk is there but it is not yet game over. 

The game might just about to start.