KLCI - JOHOTIN - 7167

BACKGROUND...
JOHOTIN (7167) is a KLCI counter in my 2014 portfolio, which fell short of my expectation due to a severe quality issue in 2014 Q2, whereby 40% of annual net profit (RM 8.0M) was paid as one-off compensation to affected customers. Stock price gap down immediate after Q2 result was released to public. 

FUNDAMENTAL ANALYSIS...
JOHOTIN, with existing stock price at RM 1.35 is a Johor based company primarily focus in tin can manufacturing (30%) and dairy products (70%). 



SUMMARY :

• Revenue generated from tin canning business (30%) and dairy product (70%).
• Low NOSH @ 93 million units
• Net profit margin of 9% vs industry average of 3% indicating the company is leader in cost control and diversification of business.
• High current ratio (Net Asset/Liability) of 3x indicating strong balance sheet with enough liquidity.
• High cash/short term loan ratio of ~2x indicating cash rich and low debt.
• Growing demand of dairy product however tin canning business remains stagnant
• New factory operation expected in end of the year and will adds 25% capacity for dairy products, resulting dip of cash flow in 2013.

TECHNICAL ANALYSIS...
Bearish trend as a result of negative sentiment after released of Q2 result.

PROSPECT ANALYSIS...

SUMMARY :

• Tin business is stagnant and stable.
• Dairy product segment expects to grow 66% as reported in financial report for 2014 March quarter.
• New factory expect to add 25% capacity for dairy products end of 2014.
• RM8.0 million is one-off payment to affected customers, should observe full revenue recovery in 2014 Q4.
• Consumer products - operating cost can be easily transferred to end users.
• Dividend yield is around 4%, comparable or better than FD. 
• Target market (80%) is oversea, renders minimal impact from GST as exporter would be able to get full tax rebate.

BOTTOM LINE :

• Excluding the one-off payment, JOHOTIN stock price would have been better if management had paid attention in product quality control.
• Long term prospect remains bright, using small cap PER@7, 2015 might be a breakthrough year for Johotin.

INVESTING STRATEGIES ...

• JOHOTIN is not attractive at the moment, 2015 Q1 financial report (End of May 2015) should give us more insides.
• Lets wait until May next year.   

At your own risk of course ... Happy investing ... =)