Tambun Lands Good Deal

If you ask any Bukit Mertajam folk what is the current property hot spot in the town, I'm sure that more than half of them will tell you it's "Song Ban Kheng road".

Mr Song Ban Kheng is an ex-principal of Jit Sin High School from 1962-1980 and is a very well-respected figure in BM.

This road is relatively new about 10 years old and is quickly becoming the main route that connects BM to PLUS highway, thus linking BM to Autocity, Penang bridge and Butterworth area.

Recently-completed road upgrade by Penang government, as well as newly constructed Beng Teik primary school, has made this area more attractive.

Various banks have started to move in such as OCBC, RHB and Hong Leong. Surely there are more to come soon. This tells us how strategic this location is.

Unfortunately, there are not much empty land left along the road for development.

Tambun Indah has just proposed to acquire 18.8acres of residential land which costs RM38.9mil (RM47.50 psf). The land is described as:

• Located 5km from BM town
• Accessible via Jalan Kota Permai
• Close proximity to Jalan Song Ban Kheng
• Has squatters on the land

From the description, it is not hard to guess where is the approximate location of the said land.

      Possible location of Tambun's land

Latest property development nearby are Casa Residence (condo), Spectrum Garden (G&G), Spectrum Residence (condo) and Taman Lembah Permai (G&G). Tambun Indah's Bukit Residence is located just opposite the road.

Personally I think it is a better deal compared to Huayang who recently acquired 2 pieces of land in BM town center at RM66 psf & RM103 psf respectively.

I believe that the next phase of development here will be Bukit Kecil area between Tambun Indah's BM Residence and Bukit Residence. Sooner or later a new road will be built to connect Keow Kuang primary school there and Jalan Song Ban Kheng. We should see who owns the land and which developers can acquire them.

       Possible Tambun's land on the right

I think this is a very positive move by Tambun Indah. The location of land is good and the price is reasonable. The only problem is squatters, and also relatively low-lying land. Hopefully both parties can come out with a good solution as soon as possible.

The land acquisition is expected to be completed in the second quarter of this year. Tambun usually will launch its development project very fast perhaps by year end or early next year if squatters issue can be settled early.

There is still no information available regarding the detail of development and its GDV. Base on current trend, it is likely that Tambun will develop it into high-end gated guarded project featuring at least 3-storey terrace, semi-Ds, bungalows, condominium and may be townhouses.

Selling price for 3-storey terrace will be above RM700k while condo will be at least RM300 psf.

It is a good acquisition by Tambun Indah indeed.

Johotin: Lackluster But Not Game Over?

Johotin FY14Q4 Financial Result

JOHOTIN (RM mil)	FY14Q4	FY14Q3	FY14Q2	FY14Q1	FY13Q4	FY13Q3
Revenue	104.7	90.7	58.8	61.5	64.6	63.5
Gross Profit	16.0	11.7	5.7	13.3	10.5	13.7
Gross %	15.3	12.9	9.7	21.6	16.3	21.6
PBT	6.6	4.0	-0.5	7.6	4.9	8.2
PBT%	6.3	4.4		12.4	7.6	12.9
PATAMI	5.2	2.9	-0.3	5.1	3.9	5.5
Tin Rev	24.7	21.1	24.8	18.2	19.2	20.2
Tin PBT	4.1	1.3	3.3	3.4	-0.2	3.1
F&B Rev	79.9	69.6	34.0	43.3	45.3	43.3
F&B PBT	3.0	3.0	-3.4	4.5	4.8	5.3
Total Equity	179.9	175.5	174.4	174.8	170.3	168.6
Total Assets	323.6	252.8	253.6	237.2	232.7	223.3
Trade Receivables	70.5	39.4	44.3	38.5	41.0	39.5
Inventories	125.0	81.8	74.1	63.1	58.3	57.1
Cash	25.5	31.1	38.7	40.5	38.3	40.0
Total Liabilities	143.6	77.2	79.0	62.3	62.3	54.8
Trade Payables	54.5	16.1	18.6	13.6	10.3	12.1
ST Borrowings	58.8	35.6	32.9	20.2	21.2	18.0
LT Borrowings	10.5	11.7	12.9	14.1	15.3	11.2
Net Cash Flow	-12.7	-7.1	0.6	2.2	-11.2	-9.5
Operation	-28.7	-9.0	-6.3	4.4	23.4	11.4
Investment	-12.3	-6.7	-2.5	-0.5	-20.6	-10.8
Financing	28.3	8.7	9.4	-1.6	-14.1	-10.2
EPS	5.59	3.15	-0.27	5.44	4.89	5.89
NAS	1.94	1.88	1.87	1.87	1.82	1.81
Net D/E Ratio	0.24	0.09	0.04	Net C	Net C	Net C

If you look at Johotin's latest FY14Q4 result, its revenue, PBT & PATAMI are better compared to both QoQ and YoY.

Comparison to QoQ is not that meaningful as investors know that FY14Q3 result was affected by the spillover of compensation paid as a result of quality issue in FY14Q2.

Compared to previous year corresponding quarter of FY13Q4, total revenue in FY14Q4 increases by a magnificent 62%, while both PBT and PATAMI also rise by a commendable 35% and 33% respectively.

Gross margin of FY14Q4 fell 1% point from 16.3% to 15.3% YoY which is not too bad right?

Is it not a good result?

JOHOTIN (RM mil)	FY14	FY13	FY12	FY11	FY10
Revenue	315.5	241.4	246.4	134.2	95.6
Revenue growth %	30.7	-2.0	83.6	38.6	-10.9
Gross Profit	46.8	50.9	47.6	27.5	19.4
Gross %	14.8	21.1	19.3	20.5	20.3
PBT	17.7	27.1	27.6	14.4	8.6
PBT%	-34.7	11.2	11.2	11.0	9.0
PATAMI	13.0	20.6	22.9	11.0	6.3
PATAMI growth %	-36.9	-10.0	108.2	74.6	26.0
EPS	13.91	22.07	30.86	16.56	9.51
NTA	1.94	1.82	1.67	1.52	1.43
ROE	7.2	12.1	14.7	10.4	6.6

Overall in FY14, revenue grows 30.7% from FY13 but PATAMI drops 36.9%. As a result, ROE drops to only 7.2%.

Gross profit margin drops quite significantly from around 20% in previous years to 15% in FY14.

Tin manufacturing is a mature industry though I think it is still not a sunset business yet. So I can't expect too much growth from this segment.

The attention is on its Food & Beverages segment.

For the last 2 quarters, I'm not sure why Johotin's revenue in F&B segment suddenly shot up so much. Its FY14Q4 revenue in F&B has surged 76% YoY. The problem is, PBT in the same period drops 37% from RM4.8mil to RM3.0mil!

The reason given by management is" unrealized foreign exchange loss arise from the outstanding balances owing to suppliers at the current year quarter".

Johotin registered a foreign exchange loss of RM1.683mil in FY14Q4, compared to a gain of RM0.15mil in the corresponding period last year.

If we add in the forex loss, PBT from F&B segment in FY14Q4 & FY13Q4 are almost the same (~RM4.7mil vs ~RM4.7mil), despite the surge in revenue in FY14. So this set of result, probably contributed by higher admin and distribution expenses, is certainly NOT good enough.

In summary, Johotin's overall FY14Q4 profit is unexpectedly "saved" by its old tin manufacturing segment which has more demand at this time.

       Johotin makes plastic container as well

Johotin's inventory level increases at an alarming rate in FY14Q4. Of course we would expect higher sales to contribute to higher inventories, but its inventories increase by 114% YoY while its revenue increases by 62%.

This is the main reason that contributes to its poor cash flow I guess, and thus the rise in its short term borrowing which pushes up its net D/E ratio to 0.24x from net cash position a year ago.

What are these inventories? Are they mainly raw material or finished products?

The management stock in more raw materials because of low milk price? Or it manufactures more products because of anticipated higher sales? These inventories are perishable...

I try to search for milk price and this is what I found.

I'm not sure whether this chart for class III milk can apply to Johotin's milk. Its management said that milk price actually increased in year 2013 due to New Zealand drought but this is not the case shown in this chart.

Anyway, we can see that Class III milk price drops drastically since the end of 2014. How will it affect Johotin in 2015? Lower selling price, higher margin, or nothing related at all?

It seems like there are 4 classes of milk:

• Class I : used in all beverages milk
• Class II : used in fluid cream products, yogurts, perishable manufactured products
• Class III : used to produce cream cheese and hard-manufactured cheese
• Class IV : used to produce butter and any milk in dried form

Johotin produces condensed milk, evaporated milk & milk powder. So, its raw material can be either Class I, II or IV but Class III... However, I can't find the price for other milk classes.


#####

Updated on 14 Mac 2015:

Noted this piece of info from i3investor shared by Icon8888 regarding whole milk powder price.

I think this chart is more related to Johotin as it shows the rise in milk price in year 2013.

Milk powder price has dropped gradually as much as 50% since early 2014 and reached bottom in the end of 2014.

Did Johotin stock in more milk powder to take advantage of this situation since its milk powder retail packaging facility is going to be completed soon?

#####

As mentioned in earlier post, I expect Johotin to be an "at-least-RM20mil-annual-PATAMI" company.

If not because of the approximately RM8mil compensation paid, Johotin can achieve close to this target in FY14.

With new venture into milk powder packaging business, there is still room to grow in my opinion.

       Able Food brands

Johotin's closest competitor is undoubtedly CanOne. I like Canone for its small fish ate big fish story. However, it might be too full at the moment to move forward.

According to Canone's website, it started to venture into F&B segment in 2006 as an OEM of sweetened condensed milk. Evaporated milk production was started in 2009 and then it has first commercial run of sterilized/flavour milk products in 2014.

I don't study Canone in detail and it seems like Canone is not involved with milk powder.

Both companies have factories in Telok Panglima Garang Selangor, both produce almost the same thing, and both also export their milk products mainly to Africa, Middle Ease & SEA etc.

So it's interesting to compare both of them.

RM mil	Johotin	Canone
FY14 Revenue	315.5	898.9
FY14 Gross %	14.8	11.8
FY14Q4 Gross %	15.3	14.6
FY14 F&B Revenue %	72	63
Market Cap	140	396
Net D/E	0.24	0.81
ROAvgE	7.4	12.4
EPS (sen)	13.91	41.85
NTA (RM)	1.94	3.42
Share Price (RM)	1.50	2.60
PE ratio	10.8	6.2
PB ratio	0.77	0.76
FY13 DPO%	9	11

As Canone has significant profit contribution from its associate Kian Joo, I will not compare their PBT/PATAMI.

While I am complaining that Johotin's gross margin has dropped in FY14, it is actually still higher than Canone (14.8% vs 11.8%). 

Johotin's whole year gross profit is negatively affected by quality issue but I'm not sure of Canone's situation.

Johotin's F&B revenue contribution in FY14 (72%) is not much more than Canone (63%).

Canone's ROE is good but its net D/E ratio is quite high, and it is trading at a very low actual PE of just 6.2x!

Both companies are pathetic in dividend payout for their FY13 and their PB ratio are almost the same now.

       Able Dairies' customers 

As world's population is growing, demand for food will also grow, especially in third world countries where Johotin & Canone export their milk products to.

This seems like a low entry barrier business and thus competition should be intense.

I like the fact that Johotin moves into milk powder packaging business in which it imports them from New Zealand and Australia, packs them in Malaysia and then exports to other countries. The milk powder caters for all age groups from infant, children to adults.

Johotin's new factory for retail packaging of milk powder is expected to be ready in Apr-Jun 2015 but as we all know, delay is common.

I'm eager to see how it will contribute to Johotin's top & bottom lines.

My target price for Johotin will be set at RM20mil annual PATAMI. With outstanding shares of 93.3mil, expected FY15 EPS will be 21.4sen. 

So currently it is trading at projected FY15 PE of 7.0x at RM1.50. I will give it a conservative PE of 8x so my target price will be RM1.71.

I just can't be too optimistic with Johotin at the moment as it currently has problems such as tight cash flow, shrinking margin and a bad record of poor quality issue.

As for the case of EPS dilution due to warrants conversion, I might just forget about it as its conversion price is as high as RM2.28.

I hope that in the future it can trade at half of Dutch Lady or Nestle's PE ratio.

Anyway, Class III milk price might be fluctuating like hell, but do we see milk powder price like Enfalac, Dutch Lady & Anlene's prices go up & down? It's actually going up like runaway train that never comes back, and it's travelling fast indeed!

Johotin: A Fairy Tale Featuring Dairy?

I started to take notice of Johotin since mid-2013, more than one year after it has completed its acquisition of Able Dairies in the end of 2011.

It was all too late by then.

After the acquisition, Johotin's revenue and profit jumped by leaps and bounds, so did its share price which went up from around 80sen in early 2012 to RM2.23 in Sep-2013.

Johotin was previously only a tin can manufacturer. It ventured into F&B industry in 2011 through Able Dairies which produces condensed milk and evaporated milk.

Soon after the acquisition, Johotin's management already planned to expand its F&B business by increasing production lines and acquiring land for new factory. This caught my attention at the time.

In Nov 2012, Johotin issued rights shares with free warrants which has exercise price of RM2.28 to fund the expansion.

If I was not mistaken, the management also gave some "guidance" on its profit at that time which attracted me.

However, I decided to monitor its quarterly financial results first.

The subsequent quarterly results in year 2013 were not up to my expectation. I expected average RM7mil PATAMI per quarter. 

It just reported about RM5mil PATAMI per quarter in 2013 which was even lower than 2012's figures. As a result, its share price also retreated.

My interest in Johotin was fading away gradually and when it reported loss in FY14Q2 due to product quality issue, it was like a final nail in the coffin.

So I stopped to follow up on Johotin after that, as I think quality issue will surely negatively affect it in this competitive market.

In early Jan 2015, one of my blog reader left a message regarding the stocks he holds and I saw Johotin in the list.

I wonder why Johotin. I know that he is a good investor so I checked Johotin again.

To my astonishment, I found out that Johotin's revenue surged 50% QoQ in FY14Q3 which was the subsequent quarter after it reported loss and quality issue.

Net profit was not that good though, may be due to compensation paid for the quality issue.

This really broke my glasses as I anticipated poorer sales after that.

I like to see increasing revenue of a company and this Johotin's revenue was increasing at a fast pace!

I wanted to know whether this high revenue was due to some one-off reason or not. Was it sustainable?

I then searched the internet and only found an article "Johore Tin Still Bullish On Dairy" on The Edge dated 27 Oct 2014.

I couldn't find out the reason for the revenue surge besides purely more sales in its F&B business.

Below are the extract of important points from the article:

*****

Johore Tin Bhd ( Financial Dashboard) has “put behind” it the product quality issue encountered by one of its condensed milk customers that cost it some RM8 million in compensation in the second quarter ended June of financial year 2014 (2QFY14), and is now revving up its milk powder business and venturing into the manufacturing of retail packs for milk powder as its next “growth catalyst”

And it is doing so with a spanking new RM17 million to RM18 million factory in Teluk Panglima Garang, Selangor.

Regardless of this (quality) issue, Goh (CEO) said the group is still looking at an overall net profit of RM19 million to RM21 million for the full FY14, a little higher than last year’s RM20.6 million, though below its initial target of RM26 million to RM28 million. Net profit for the first half (1H) of FY14 is now at RM4.8 million.

Its new factory in Selangor that will house its new milk powder packaging venture is being built near its subsidiary Able Dairies Sdn Bhd’s existing factory, which will also help ease the latter’s space constraints.

“Currently, Able Food is engaging third party packers to pack the retail packs. Once the factory is ready in the second quarter of next year, it will do most of the packing in-house. Hopefully, we can rake in revenue of US$4 million (RM13.12 million) to US$5 million a month once it is fully functional,” said Goh.

The 100,000 sq ft factory on the 1.6ha tract of land has a milk packing equipment capacity of about 2,000 tonnes per month. Like its condensed milk and milk powder business, the group is targeting the export market to account for more than 80% of its new milk powder packaging business, mostly to the Middle East, Africa and Asia.

“With this new venture, we are hoping our F&B segment revenue will hit RM250 million and above by next year [FY15] — from RM158.3 million in financial year 2013 — to account for about 70% of our estimated group revenue of RM350 million,” Goh said.

While Goh still expects an annual 25% revenue growth from its condensed milk business, he said the milk powder business will be the one driving segment revenue growth in FY15 as it is still selling below its target.

He acknowledged there is competition from other countries, but noted that the group has a ready market in the condensed milk business — retail customers — to kick-start the milk powder business.  

*****

Johore Tin currently has two companies in its F&B segment:

• Able Dairies (acquired 100% in Aug11): condensed & evaporated milk
• Able Food (acquired 80% in Feb13): milk powder

       Able Food: Milk Powder

From the article above, the CEO expects 25% revenue growth in Able Dairies in FY15, while Able Food's revenue will grow to about USD4-5mil per month (RM13-16mil per month) or RM40-48mil per quarter (according to article above, using old exchange rate) after its new factory is ready in FY15Q2 and fully functional.

Johotin's usual total revenue is at approximately RM60mil a quarter. FY14Q3 revenue is at RM90mil. Did the CEO mean a potential RM130mil a quarter in FY16?

Or is the revenue of US$4 million to US$5 million per month above meant for the whole F&B segment and not only the new milk powder business?

I think it is unlikely to be the whole F&B segment as for 12 months of FY14, overall revenue from F&B segment is already RM236mil or average RM56mil per quarter, even before the new factory is ready.

However, if the USD4 to USD5mil per month figures are expected just from the new factory (milk powder), it is too good to be true as it will almost double its already-high current F&B segment revenue.

This potential for growth looks attractive enough for me, especially when the share price was beaten down by quality issue last year.

So I decided to invest in Johotin. I waited for its share price to drop to RM1.30 in early January but it rose to over RM1.50 instead.

Finally I bought some at RM1.50 as I saw no chance for its share price to fall from there before the announcement of FY14Q4 result.

I planned to add more shares only after reviewing its quarterly results but eventually I suddenly felt confident enough to buy them before the result announcement after seeing good results from Canone.

Nevertheless, its latest profit disappoints me in fact, but at least one very positive thing is that its revenue not only sustained QoQ, but reaches a record high.

Its share price drops after the result announcement, may be because of poor cash flow and higher expectation from investors. Perhaps I should only buy its share after the result has been out.

Anyway, I will post my own analysis of its latest result later.

I think there is still risk when investing in Johotin. The management tend to give profit "forecast" which it can't accomplish. So one has to be careful with its revenue or profit guidance.

In the article above, CEO mentioned that the company "is still looking at an overall net profit of RM19-21mil for its FY14" while its half year net profit was just RM4.8mil. Now FY14 net profit turns out to be only RM13mil.

The company's profit target in FY13 was also not met due to New Zealand drought which raised the selling price of milk products and lowered demand.

Personally I see Johotin as an "at-least-RM20mil-net profit-a-year company". So its EPS will be at least 21.4sen with 93.3mil shares.

However, commencement of new production facility may incur higher cost initially and erode its profit.

Johotin still has 23.3mil warrants which will expire in Nov 2017. Its exercise price is at a high of RM2.28 so I don't think EPS dilution is a problem before the mother appreciate 50% from RM1.50.

Anyway, with the release of its latest result of FY14Q4, everything does not look straight forward. It looks promising but it might not be a sure win situation.

Invest at your own risk!

My Portfolio Feb15

Summary For February 2015

Feb-15
Numbers of stocks	9
Cash:Share ratio	1:10
Share Bought	Johotin @ 1.50 & 1.60
Share Sold	Tambun @ 1.91 (part)
	Latitud @ 5.40 (part)
Overall 2015
Portfolio Return Feb15	13.9%
KLCI Return Feb15	2.24%
Portfolio Return YTD15	33.5%
KLCI Return YTD15	3.40%

Portfolio return calculation method here


Stock Portfolio @ End of Feb15

Core Portfolio

Stocks
None

Satellite Portfolio

Stocks	Avg	Jan15	Feb15	Div 15	Feb15(%)	Overall(%)
GTRONIC	2.43	4.82	4.85		0.6	99.6
HHGROUP	0.475	0.475	0.475	0.005	0.0	0.0
HUAYANG	2.32	2.15	2.03	0.05	-5.6	-12.6
INARI	0.82	2.87	3.08	0.023	7.3	275.6
INARI-WB	n/a	n/a	1.49		n/a	n/a
JOHOTIN	1.54	n/a	1.61		n/a	4.5
LATITUD	2.09	4.51	6.18		37.0	195.7
MATRIX	2.09	2.75	2.89		5.1	38.3
SCIENTEX	5.47	6.63	6.95	0.13	4.8	27.1
TAMBUN	0.77	1.86	1.87	0.03	0.5	142.9

Comment:

• Portfolio gain in Feb15 was almost solely contributed by Latitude Tree which carries the largest weightage in the portfolio. However, part of the shares were sold early at RM5.40
• Added Johore Tin & Inari rights shares to portfolio in Feb15
• Average price of Inari adjusted from 73sen to 82sen after purchase of rights shares

Plan:

• To find a stock for core portfolio