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Monday, March 19, 2012

Johore Tin (RM1.28; TP: >RM1.80): After a huge surge, more to come? (Amended)

Johore Tin is a stock worth going into. I've mentioned it few weeks back in twitter. PER 5x based on this year's estimated net profit of $18mil, strong balance sheet, expected to be net cash this year, acquired an F&B company last year (Able Dairies) which gives a boost to their profits and gives them profit guarantee of RM10mil for FY2012. Just look at F&N, Nestle and Dutch Lady which have PER of 17x-25x!!... as compared to Johore Tin's PER of 5x. If PER of 8x is attached to it, fair value should be 60% from current price. OSK's profit estimate of RM13.9mil could be too conservative (according to management). Do read this week's The Edge Weekly's article on Johore Tin. 

PS: Some are asking about the profit guarantee of RM10mil. To know this, we have to look back at the acquisition document posted back in Aug 2011. Basically the acquisition of Able Dairies was done via issuance of Johotin shares worth RM4mil and RM27mil cash. Out of the RM27mil cash, RM3.5mil is paid provided that Able Dairies achieve RM7mil in FY2011 and another RM5mil when Able Dairies achieve RM10mil in FY2012. When Able Dairies achieve less than RM10mil in FY2012, for eg. RM8mil, Johotin will only have to pay RM3mil to Able Dairies shareholders instead of RM5mil (RM2mil deducted from the RM5mil which should be paid by Johotin). 

Happy investing!

5 comments:

  1. Johore Tin got a boost in its growth after acquiring Abel Dairies last year. Its profitability has also improved. However, even with the increase in profitability, its net profit margin (8.5%), ROA (6%) and ROE (10.6%) etc are still on the low side. This may be the reason why it is trading at a low PE of 7.6 despite its high growth. It has to improve its profitability further in order that its growth can enhance shareholder value.

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  2. Abel Dairies main product is condensed milk. When was the last time you bought a tin of condensed milk?

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  3. 95% of Able Dairies products are exported to Africa, Mideast and other poorer SEA countries where their people likely can't afford milk which had multiplied in prices over the past few years (200% rise). Condensed milk probably moved up 30% only over the past 5 years. How would that reflect on the demand for condensed milk from these countries? I dunno. So, we shall look at their results over the next few quarters eh?

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  4. Able Dairies is pretty much the same as Can-One's F&B as Can-One's F&B also manufactures sweetened condensed milk and evaporated milk which are exported to the same countries. Can-One's venture into this F&B had yielded good profits over the past few years. Thus, Johore Tin is sorta following the footsteps of Can-One.

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  5. how is able dairies comparable to nestle or dutchlady?

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