Posted by ronnietan > 2016-10-24 12:13 | Report Abuse

I don't buy unrealised forex loss is a non-cashflow item, and by suggestion, a non-event. If a non-event, why provide? Forex loss is real if USD remains at current level, which the company uses, as to who knows what it'll be in future. It could be higher, or lower, in future.
So if USD stays at current level, this is the real cashflow payout when it's time to pay interest, and repay the loans.
This is just my view on this point, which covers AirAsia and its USD loans too, but overall, a good article, YiStock.

Posted by ronnietan > 2016-10-24 13:04 | Report Abuse

Btw, investors in Canone may have to wait longer, if USD stays around RM4.18.
But another 2 months to go to Dec 31, at which date, who knows? USD could be lower. Investors have to brace for more volatility if USD stays firm.
My view of USD is it'll be firm.

Posted by YiStock > 2016-10-25 09:53 | Report Abuse

# ronnietan, you have said it yourself: "why provide". Of course it is an event. If not it will not be recorded.

Posted by andyhard > 2016-10-26 15:14 | Report Abuse

Hi...the new diary line expansion completed by Q42015? Did they mention start operation on Q12016? It seems the revenue din increase much...the Myanmar is KianJoo Can new factory??

Posted by YiStock > 2016-10-26 16:54 | Report Abuse

Andyhard, Are you referring to below?

(3) ...Canone itself is adding additional dairy line in Q3 2015 and Q4 2015. The expansion plan ate up FCF and also causes the cash pile depleted and total outstanding loan increased. The expansion plan is done.


I have double check all the reports, my mistake, as the additional line (referring to evaporated creamer lines) has been completed in Q2 2015, and "STARTED CONTRIBUTING" in Q3 2015 & Q4 2015. Not completed by Q4 2015.

Referring to Q3 2015 quarter report, the added capacity "from the evaporated creamer lines" has managed to improve the revenue and offset some slowness in Sweetener line. Thanks to the added evaporated creamer capacity.

Q3 2015 negative FCF is mainly due to increased in receivable.
Q4 2015 negative FCF is mainly due to increased in inventory and higher payout.

Let refer below half yearly performance of Dairy division:

2016 1st half: Revenue 303 mil; PBT 36.8
2015 2nd half: Revenue 301 mil; PBT 37.3 (high demand on evaporated creamer)

2015 1st half: Revenue 262 mil; PBT 27.8 (lower demand on sweetener creamer)
2014 2nd half: Revenue 307 mil; PBT 29.4
2014 1st half: Revenue 277 mil; PBT 17.5

From the reported revenue, can see the added capacity has so far proven give better result (2016 1st half & 2015 2nd half), PBT reported at 37 mil vs previous period.

As for the quantum of increase,very subjective ba..

You are very good. I like your useful feedback..Please come back more often.

Appreciate.

Posted by andyhard > 2016-10-27 11:25 | Report Abuse

Hi Yi stock,

Thanks for your info. As I am studying some other stock, not enough time to kick into this. Thus, your research does help me to make quick decision.

Just a few more questions hope you don't mind

1) I saw the revenue from 2014 already 307 mil for dairy, so it seems 2016 1st half of 303 mil doesn't really increase if the new evaporated creamer line start operating Q32015. But PBT does improve. So, the dairy mainly is on evaorated creamer and sweetener? Do they do on milk powder like Johotin?

2) Regarding FOREX, do you know how much of the outstanding loan is USD denominated? As mentioned by you, the repay 99 mil. If loans denominated in USD are paid down, the forex impact is very high mitigated. If USD stay firm without strenghtened much, then forex impact is much lowered. As long as the fluctuations stay firm, the forex impact is not that much. Do you have the figure of interest paid per quarter. As the borrowings is huge, the savings will be huge as well if they repay it fast.

3) Do you have the margin of the can industry and dairy industry. I have studied quite a bit to Johotin, I can do a quick comparison if I have those figure.

4) Thew new factory in Myanmar in can factory? When would it be expect to start operation?

Thanks. I see recent correction in chart is a good time for us to study more. Consolidation will takes time

Posted by fengtzekai > 2016-10-27 13:56 | Report Abuse

To ronnietan, my 2 Sen worth on why unrealised gain/loss is not a cash flow item:

Assuming I have USD100,000 cash at the end of 30 September when USD was at 4.13, I have a cash balance in the book of Rm413,000.

If I kept all these cash until the end of 31 October and the USD rate has increased to 4.16, I have a cash balance of RM416,000.

In the book, I have unrealised profit of RM3,000 but in terms of cash flows, no additional cash has been received or paid out. But I will have to recognise the increase in value as a profit in the income statement but no entry in the cash flow statement.

Posted by fengtzekai > 2016-10-27 13:58 | Report Abuse

A good financial guy will manage the cashflows carefully so that the risk is either managed using:
1. Natural hedge (matching foreign currency receivable & payable)
2. Forward contracts (pre-book the rate with the banks)

However, the company will still need to recognise the fluctuation in value of foreign currency assets or liabilities.

Posted by fengtzekai > 2016-10-27 14:01 | Report Abuse

If you see the term derivative financial instruments in the balance sheet (like in Can One or Kian Joo), you can read further the note. Very likely these refers to the instrument they use to manage foreign currency risk.

We cant just look at the unrealised gain/loss to conclude whether the company have heavy exposure to foreign currency risk. You have to net it of with the gain or loss on derivative to reveal the actual position. This is true at least in the case of Can One.

Posted by fengtzekai > 2016-10-27 14:07 | Report Abuse

In the case of Kian Joo cash reserved for Myanmar, I have the following comments:

1. If the cash has been injected to Myanmar, whether or not it is converted into any other form of assets, there will be no gain or loss to be recognised in the future if the functional currency in Myanmar is also USD.

2. Kian Joo will continue to be expose to foreign currency gain or loss if the money is still kept in Malaysian soil

3. In both of the above scenarios, the cash would still be translated into Ringgit for accounting purposes. The difference is in scenario 1, the gain or loss will be accounted for as translation reserve (not as profit or loss) whereas in scenario 2, it will be considered in profit or loss account.

4. I believe in Kian Joo Q1, the loss is actually a reversal of last year's gain. If you look at 2015 accounts, they recorded huge foreign currency gains.

Hopefully the CFOs are smart enough to manage these risks. Else it will be a disaster.

Posted by YiStock > 2016-10-27 15:37 | Report Abuse

Andyhard,

1) I think F&B Nutritions does not do milk powder. I hope they will consider to venture into this. Since the foot print already in North ASEAN, milk powder should make good money too with reasonable premium. The whole of ASEAN population is not small too.

2) Based on 2015 report, Canone has net exposure of about RM 10 mil worth of USD, and mainly from receivable vs payable..not really on loan. Year 2014 yes. Therefore, weakening of ringgit should benefit them. However, net exposure is not guarantee consistent year over year.

The forex risk come mainly from 32.9% subsidiary Kian Joo. I think the impact is calculated within Kian Joo accounting. The net net profit will then segreated to Canone.

So far Averagely RM 5 mil interest paid per quarter by Canone.

3) Since Kianjoo is the leader in can manufacturing, i think they have volume to play the margin.

4) The factory in Myammar do both can and carton. Expect start running in 2017. The large USD cash pile is in the account for the expansion plan. That's make Kian joo vulnerable to forex fluctuation. Hope the nightmare end in 2016 (balance quarter seem ringgit not doing well).

Above some of my tracking.

Posted by YiStock > 2016-10-27 16:06 | Report Abuse

I also have one interesting finding (pending verification). As Canone's 32.9% stake in Kian Joo is registered as "Investment in Associate" under NON CURRENT ASSET, therefore, the cash pile of 78 mil currently carrying in Canone should not includes the CASH currently carrying carried in Kian Joo's account.

When i check back Kian joo account,
1) Receivable + inventory = 706 mil
2) Payable + loan = 514 mil

So by theory, the cash flow itself is enough to run the biz.

But, Kian Joo still have cash pile worth RM 176 mil. The cash pile is built over the past few years (as part of the chips of negotiation) when Aspire insight want to take over KianJoo at RM 3.30

So,Canone 32.9% = 57 mil. I treat it as FD Canone put with kianjoo.

If Canone really need money, then they have RM 57 mil as back-up. Maybe as loan from subsidiary..i'm not sure.

So, i think Canone actually very cash rich.

Posted by fengtzekai > 2016-10-28 12:12 | Report Abuse

From what I understand:
1. FNB does not do milk powder but Kian Joo has a unit which deals with milk powder packing. It is doing contract packing for people. Due to their business model, the turnover is not big as they only charge contract packing fee as they do not want to take the pricing risk on milk powder.

2. From accounting perspective, foreign currency risk in Kian Joo does not flow into Can One. The foreign currency risk disclosed in Can One is purely Can One's own risk, arising (I guess) from export sales.

3. Can One cannot borrow money from Kian Joo due to regulatory issues.

4. They need CFOs who are prudent and do not speculate in currency. Else it would be like IOI last time - disasterous.

Posted by andyhard > 2016-11-01 17:55 | Report Abuse

Just some updates on what I found,

Borrowings dominated in USD
RM'000
Q2FY16 Q1FY16 Q4FY15
Secured
Receivable financing 6,519 56,342
Foreign currencies trade loans 6,989 5,159 7,818


Unsecured
Bill receivables 4,246 40,024 4,418
Foreign currencies trade loans 42,895 18,134 61,036

Total borrowings in USD 60,649 63,317 129,614

In conclusion, the exposure of borrowings in USD had been reduced significantly from Q4FY15 to RM60mil in Q2FY16. This is a good move to reduce the risk to forex fluctuations.

I have checked that the PBT margin for can manufacturing is so meagre around 2-4%. In fact, it is rather close to Johotin. Can division revenue had been stagnant or move around RM80-100 mil per quarter and it is sort of sunset industry. Again, it is same as Johotin case. Reason being is stiff competition. I see that people tend to move forward to fresh food than processed, reducing the demand for can.

Now, back to the basic of a stock that will shooting high as mentioned by Cold Eye, must have 2 engines. One is growth engine, one is macro positive environment engine.

On that, I very specific on management team as they are the one allocate the CAPEX and direction of the company. From the back ground of the Yeoh family, I only can use one word EXPERIENCED. They have built numerous famous brand like Ibumee. So, from capability wise, they are good. From they way they hold KJ Can, I personally feel they are aggressive in controlling or grabbing market share. This is GOOD too. From can diverting to evaporated creamer and sweetener, I think they are good in business sense and growing the company. Same as expanding to Myanmar.

The only bad thing is they don't pay good dividen and they are very low profile (in annual report, there is also not too much information). I just hope that there is no conflict within their family members that will affect the company.

I will look more into dairy business and see how far it can go

Posted by YiStock > 2016-11-18 09:45 | Report Abuse

Q3 kianjoo's performance way above expectation even scrap the forex gain. Q4 should be good too since forex is not a major issue to Kian joo now.

Posted by YiStock > 2016-11-22 20:13 | Report Abuse

Johotin reported HIGHER revenue of dairy product in Q3 2016 vs Q2 2016. However, LOWER segment profit is reported against Q2 2016. While pending verification on higher PBT for dairy division, brace for impact if you own Canone. good luck all.