REVIEW OF PERFORMANCE & UPDATES...
JOHOTIN released its quarterly report@29-May-2015, revenue rose by 48% if compared to preceding year corresponding quarter, however being hauled back by foreign exchange related loss that driving net profit margin back to 4.4%, vs 8.2% with preceding year corresponding quarter.
A mystery expenses of RM5.156 million (16x higher than last year), recorded as 'Other expenses' was not given explanation by the management.
At the same time loan and borrowings exceeds RM100 million, driven by short term banking facilities (secured).
Utilization of fund raised from right issue to build a new ware house and factory is ~98%, expect completion in 3rd quarter of 2015.
THE GOOD :
- Sustainable revenue and has set a good foundation for future growth
- Completely walked out from disastrous quality issue that led to loss making quarter 2014 Q2.
- Completion of new warehouse and factory would contribute positively to the revenue of the company after 3rd quarter 2015.
- Immune to GST (To be confirmed in next financial report)
THE BAD :
- Erosion of net profit margin to 4%.
- Fragile to the fluctuation of foreign exchange as reported.
- Integrity of management is questionable for not providing explanation on the huge RM5.156 million expenses, accounting for 30% of its gross profit.
- Growing debt that exceeding RM 100 million, which is huge for SME standard.
THE BOTTOM LINE :
- In general not a bad quarter at all as JOHOTIN manage to stay in profit but should have done better to hedge the risk of foreign exchange.
- 4% net profit margin is simply not good enough, using PER of small cap from 7 to 12, the fair price should be ranging from RM1.14 to RM1.95 (if margin stays flat for the entire fiscal year). Not much upside from current price of RM1.60.
- Not recommend to add position until improvement in profit margin.
- Malaysia's cautious macro economy outlook is not helping either, even though the author expect recovery in the second half of 2015.
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