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Monday, May 14, 2012

Johore Tin and TDM

Johore Tin: 1Q2012 profit expected to exceed forecast of RM4mil. Annualized profit will be RM16mil or EPS of 22.8 sen, thus PER only at 6.3x, which is too low for a stock in the consumer sector. Its dairy product manufacturing business is expected to remain strong with its capacity fully utilized over the next 4-6 months. The company is also planning expansion plans to increase capacity by 10% over the next 6 months and potentially up to 30%. In addition, the company is seeking to enter Myanmar which has huge growth potential. 

To recap, 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. 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 and I expect Johore Tin to follow suit. 

OSK's price target is at RM1.70. I think it should trade higher as OSK's profit estimates might be a bit conservative. Since Able Dairies profits had only been proven over the last quarter, I think investors might be a bit apprehensive over how sustainable the profits are. If profits from this segment over the next few quarters  are as expected and growing, investors' confidence towards its dairy product manufacturing business will be stronger and the stock price should reflect that. It's giving out single tier div of 3.8 sen, could be in the next month or two.

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Recent TheEdge article, click here.

TDM: What is TDM doing at PER of 7x while other plantation counters raced to PER of more than 11x? Just for comparison sake, it's so 'darn' cheap compared to the rest.  Just look at TWSP (It just shot from RM3.70 to RM5.70 since I recommended), TH Plantation, SOP, Jaya Tiasa, RSawit etc etc. It's giving out dividend of 18.5 sen with ex-date on 23 May, a decent yield of 4%. I still think it should add another RM1 to its share price.

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Others: 
It's very hard to play the market now. Many undervalued stocks have moved up already. Other notable ones include Kassets and YHS (I'll leave them for another day). It's good to buy into defensive stocks which pay good dividends in view of the weak sentiment now to ride out the uncertain market now. Good luck!

7 comments:

  1. You are one of the sharpest analysts of Malaysian equities around. Keep up the excellent work.

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  2. My concerns / 2 cents :-

    (a) Johore Tin - the profit margin for the dairy products such as sweetened creamer is very low. Even Dutch Lady exited quite recently. So will the profits be sustainable?

    (b) TDM has not been doing much of expansion. So where is the growth coming from going forward? Esp. when CPO price drops (as it's happening recently).

    Would appreciate your views.

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  3. Johore Tin: PBT margins of more than 10% seems decent for me. However, margins might be tight in the future due to keen competition according to management, thus will need sales volume to back up. One comforting thing is that their capacity will be fully utilized over the next 6 months and they're increasing their production by 10%-30%. There will also be synergies between its tin can and F&B manufacturing which may result in lower costs. We shall see this over the next few quarters.

    TDM: Its Indonesian plantations of 40,000ha (more than its existing 32,000ha in Msia) will start contributing by 2014 when they mature and its healthcare segment is still expanding through construction of new hospitals and upgrades. Earnings growth will be seen by 2014.

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  4. Thanks David for your insights. For a more immediate return on investments, would you not think that perhaps TSH is more value for money compared to TDM?

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  5. In the immediate term, I would try to hold less commodity related stocks. Go to those which use commodities to produce goods.

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  6. I've yet to analyze both of them in detail. Sorry. With the kind of choppy market right now, it's better to stay in the sideline for the moment.

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