Posted by goreng_goreng > 2015-06-06 12:18 | Report Abuse

good easy to understand article. keep it up ;-)

Posted by fengtzekai > 2015-06-06 14:45 | Report Abuse

Observations:

1. Kian Joo, Can-One and Johotin all invest in downstream industry with different strategy with the same objective. Kian Joo has contract packing services in milk powder and beverage. Can-One has long invested in dairy business before Johotin follow suit. These downstream activities all have one similar impact to the three companies - helping them to sell more cans.

2. Lets compare the ratios of Johotin dairy segment and those of CanOne, the contract packing division in Kian Joo and Dutch Lady - which is wholly in dairy business.

Dutch Lady - Revenue - RM1,000 million, Operating profit - RM148 million (14.8%), Segment assets - RM345.5 million (Return on assets 42.8%), Total inventory - RM92.5 million

Kian Joo - Revenue - RM51 million, Operating profit - RM3.4 million (6.7%), Segment assets - RM43.5 million (Return on assets - 7.8%), Total group inventory - RM307 million

CanOne - Revenue - RM585.2 million, Operating profit - RM49.4 million (8.4%), Segment assets - RM420.8 million (Return on assets 11.7%), Total group inventory - RM125.3 million

Johotin - Revenue - RM236.7 million, Operating profit (exclude compensation) - RM13.5 million (5.7%), Segment assets - RM206.5 million (Return on assets 6.5%), Total group inventory - RM130.7 million

If exclude Able Food data, the info will be as follows:
Revenue - RM178.5 million, Operating profit (exclude compensation) - RM18.3 million (10.2%), Segment assets - RM122.2 million (Return on assets 15.0%)

Something i cannot understand is why its inventory is so high in comparison to CanOne and Dutch Lady which is double and 4 times Johotin segment revenue in dairy division. Though we can tell how much the inventory is for dairy product or tin can business.

If it is for dairy product, the risks are as follows:
A. Inventory risk - milk powder are perishable, they are food product

B. Pricing risk, high inventory suggest that shareholders better hope that milk powder price will shoot up in the near future.

If milk powder price maintain, it made the cost to finance inventory holding, however low the interest rate and warehouse rental, will actually add unnecessary cost to the company.

Worst still if the milk powder price drop further. It will have tough time selling the inventory - which you must remember, are perishable.

Apart from forex risks which has been discussed in detail, to me these are the risks which is important in understanding Johotin.

Just blowing water.....

Posted by repusez > 2015-06-06 15:07 | Report Abuse

good writeup but the spelling is dairy not "diary"

Posted by matakuda > 2015-06-06 15:16 | Report Abuse

repusez, please provide comments objectively. Spelling mistakes, grammars, fond sizes, etc. are non-issues.

Posted by Icon8888 > 2015-06-06 16:39 | Report Abuse

Oh my god, it should be dairy

I feel so embarrassed !!!

Thanks anyway

Posted by kakashit > 2015-06-06 21:53 | Report Abuse

i sold my johotin after dec result out, now Icon888 wrote so much on johotin, so 给力, i feel like i wanna buy back

Posted by Icon8888 > 2015-06-06 22:08 | Report Abuse

kakashit when I write more articles, it doesn't necessarily mean I am particularly keen. It is more because I am able to dig out more info.

Posted by newbird33 > 2015-06-06 23:28 | Report Abuse

To those who worry milk powder is perishable, shelf life of powdered milk is 2 to 10 years.

Posted by newbird33 > 2015-06-07 00:11 | Report Abuse

To those who keep on complaining that the company did not hedge its net forex exposure of RM41.8 million as at 31 dec 2014, please be advised that about RM100m of the inventories are related to milk powder business which are substantially sold in USD and can be used to settle its USD payable/bank borrowings.

Posted by newbird33 > 2015-06-07 00:31 | Report Abuse

One cannot compare the inventory level of Johotin and Dlady. DLady is a subsidiary of international dairy group where the sourcing is most probably handled by HQ through bulk purchase. Canone business model may be different. Canone is an OEM supplying mainly to domestic market and may have a cost plus arrangement. Thus it need not stock up to take advantage of the low raw material price as whatever cost savings have to pass to its customers. In 2014 it recorded lower selling price as raw material price dropped. As for Johotin, whether it is speculating on milk powder market or has firm order on hand, only time will tell.

Posted by fengtzekai > 2015-06-07 16:15 | Report Abuse

LOL....dont let my seemingly harmless presentation of facts dampen your appetite on Johotin. My apology if my kiasu analysis upset anyone here. This is not my intention.

Here, i just wish to present a few basic facts, you make your own judgement:

1. Please go to the supermarket and see whether you can find any condensed milk, evaporated milk or milk powder with a shelf life of 2 years or more. May be not my part of the world.

2. From the website of Fonterra, the world largest dairy provider, this is what you can see under nzmp ingredient - skim milk powder section.

"Our manufacturing processes maximise the shelf-life stability of SMP and if stored under the recommended conditions it will be suitable as a dairy ingredient for 24 months".

TO suggest that Johotin who has just recovered from huge loss for quality issue (for reasons not known to us) can actually hold inventory for a longer period ........You make your own judgement.

3. Information on Can-One's dairy business are presented in full in its recent circular. Its inventory level for milk segment is only RM41 million with net receivable in USD worth RM11 million.

At 31 Dec 2014, Johotin net payable in USD of RM41 million and inventory level of RM130 million (tripled that of 2013) and still growing by RM20 million in Q1, 2015.

You make your own judgement.

4. The difference between the dairy segment between Can-One Group and Johotin is that Can-One is purely OEM manufacturer (i.e. does not have house brand) but Johotin has its own house brand.

Naturally Johotin ought to have higher margin as it is earning the traders' margin as well since it is selling its own brand. But is this actually apparent? You make your own judgement.

5. Whether not hedging USD risk and taking long position on milk powder is speculation or a stroke of genius - by the time we hit August, we will know. USD rate is 3.76 at this moment Vs 3.71 by end of Q1, 2015.

Last but not least, I kiasu, don't let me dampen your optimism on Johotin.

Posted by fengtzekai > 2015-06-07 17:35 | Report Abuse

Also some more statistics which you may be interested in:

If you want to believe that Dutch Lady actually have its head office holding the inventory for them, look at their annual report. Their purchases from related company is around RM270 million for a company with RM1 billion turnover.

Also 36% of FNB revenue is exported directly to Middle East, Africa and other Asian country, according to CanOne's circular.

Posted by Icon8888 > 2015-06-07 18:01 | Report Abuse

Everything is fine with Canone, it is more superior, I agree, except that its major shareholder is trying to steal from u, LOL

Posted by Icon8888 > 2015-06-07 18:04 | Report Abuse

I am actually very upset with the deal

I am absolutely convinced that it is a conspiracy to rip off minority shareholders

Canone is such a good company, what a waste

Posted by Icon8888 > 2015-06-07 18:13 | Report Abuse

And if you think that losing kianjoo is no big deal, there wl be a Part 2. Later on they will engineer a deal for Kianjoo (owned by EPF and Canone boss' proxy) to acquire canone's assets at a depressed price. Since it has been legally established that Canone boss is not related to Kianjoo (which by then is owned by his proxy), he will once again r able to vote in EGM and bulldoze the deal.

I would say that the deal is brilliant for the major shareholder of Canone, but it stinks to high heaven

One of the worst corporate governance ever seen

Posted by Icon8888 > 2015-06-07 18:14 | Report Abuse

Sorry for bitching about Canone, nothing personal, I just dislike the way they rip off minorities

Posted by fengtzekai > 2015-06-07 18:56 | Report Abuse

Totally agree with Icon8888 on CanOne. The greatest risk in investing in CanOne is that they never play according to general norm. Else they wouldnt land themselves with Kian Joo in the first place.

Also on the EPF deal, i dont think it will happen simply because it needs 75% shareholders, present and voting at the EGM to approve. See family has enough shares to neutralise CanOne's 32.9%. The deal will then be decided by the other shareholders where EPF cannot vote.

For every 3 voting for the deal, we only need 1 share to vote against.

I would be surprised if CanOne can garner enough shareholders to pass the deal.

However, in respect of my comments here, i am interested only in the operational ratios when comparing it against Johotin.

Posted by fengtzekai > 2015-06-24 09:19 | Report Abuse

The latest announcement on new USD3 million foreign currency revolving credit make better sense to partially address the USD exposure situation. Revolving credit is a much better tool than trust receipt as it can be rolled forward.

Posted by zbaikitree2 > 2015-11-06 13:31 | Report Abuse

Icon8888. Very good article on johotin. I wished i had read it earlier.
I think the recent china 2 child policy will sky rocket all these food based co. Profit.
Suddenly you have double the new born in the largest mkt in the world. Everything is not enough. Have anyone look into this angle??