High Growth Defensive Stock!!
1. Johotin majority business is to produce tin cans ranging from confectionary to paint and chemicals, and F&B dairy products. These two businesses contribute 23% and 67% to their total revenue, with average rate of return of 5-8%.
2. The production line situated in Johor bringing about 160,000 tons of dairy products every year, with maximum capacity that can go up to 220,000 tons/year. The group has announced that they have purchased a land in Klang for expansion to increase production capacity through their wholly-owned subsidiary – Able Dairy.
3. Johotin invested USD 5millions in Mexico, owning 43% of shares through affiliation in order to expand their dairy business to the Americas. The maximum capacity of this factory plant can go up to 160,000 tons.
4. The production in Mexico will start operating in December 2020. Running of 70% capacity of the plant can bring RM10millions of net profit to Johotin.
5. Due to MCO, the production in 2020Q1 and 2020Q2 was capped at 50% capacity, which was unfavorable to the company. But, we forecast that Q3 and Q4 can turn this unfavorable situation over and total revenue for this financial year can go up to RM40millions and above.
IS THE BUSINESS DOING GOOD??
Source: JOHORE TIN BERHAD ANNUAL REPORT 2019
- Revenue & net profit is growing consistently throughout these 5 years.
- JOHOTIN is generating positive cash flow from operation. (CFO)
- Company is with good management team with proven track record.
IS THE COMPANY HEALTHY??
- Net cash company with 14mil cash, sufficient fund for future expansion.
- JOHOTIN with healthy current ratio of 2.9.
- JOHOTIN is paying decent dividend of 3.7%.
FUTURE GROWTH DRIVER & FUTURE PROSPECT:
- Future expansion to increase production capacity through their wholly-owned subsidiary – Able Dairy at Klang.
- Defensive and growth stocks. Affiliation with Mexico can improve profitability for the coming financial year.
- Positive future annual growth forecast by analyst of 15.4%.
- Company sales & revenue highly affected by Covid-19 pandemic and "MCO" during March. Probability of second "MCO" will cause adverse impact to the Company.
- Expenses increases due to expansion in Mexico and purchase of land in Klang.
- Price fluctuation of raw material will affect the Company's profit.
- Increasing competition in tin manufacturing, lower profit margin.
- The rate of revenue growth from tin cans production has slowed.
IS WORTH TO BUY IN NOW??
- JOHOTIN is belongs to food industry. Malaysia food industry PE ratio average at 21.2X. (source: SIMPLY WALL STREET)
- JOHOTIN current PE is 11.6X.
- Conservative calculation, assuming JOHOTIN with P/E of 16X (average of PE21.2X & 11.6X), JOHOTIN is worth at least RM2.18, potential upside of 38%.
- Defensive growth stock with solid track record. Revenue is growing steadily. Strong & experience management team.
- Future expansion of Factory at Klang and Mexico will contribute to company's revenue.
- Financially healthy with net cash position.
- Potential upside of 38%, & with decent DY of 3.7%
#J.WOLF INVEST #JOHOTIN #GROWTH
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as investment advice. Any reference to an investment's past or potential
performance is not, and should not be construed as, a recommendation or
as a guarantee of any specific outcome or profit.