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Qi Jie asked 3 years ago

Hi, I would like to have some advise on JB Foods, which is in the production of cocoa butter, powder, liquor and cake. 
It is still a relatively small company and what I know is currently the cocoa beans will be one of the factor that affects the company earnings, as harvesting of cocoa beans is cyclical. It is also trading at a low PE of 7x and used to be lower at around 5x. 
May I know what do you think of this company and what I should take note when analyzing it?
Thank you.

3 Answers
Victor Chng answered 3 years ago

Hi Qi Jie,
I have not analysed this company before. May be you want to share more in details on what you know about this company so that I can give some pointers from there.

Qi Jie answered 3 years ago

The company started as a processor of wet cocoa beans to dry cocoa beans in the 1980s. Company listed in 2012. Currently processing abt 145000 metrics ton a year of cocoa beans. Have 2 factories, Malaysia, Port of Tanjung Pelepas, a free trade zone in Johor. Also Indonesia, Maspion Industrial Estates in Gresik, 30km from Surabaya Port.
Malaysia process abt 85000 MT and Indonesia 60000 MT of Cocoa Beans a year.
 After processing the beans, the beans is use in the production and sale of cocoa ingredient products, namely cocoa butter, cocoa powder, cocoa liquor and cocoa cake.
Revenue grow from USD 194.8mil to 295.6 Mil from 2013 to 2017. 
Profit attributed to equity holders growing steadily from -15.3mil in 2012 to 14.2mil in 2017.
Cash and Cash equivalents is going up and down abit, but postitive so far, from 21.7 in 2013, 32.3 in 2014, 7.4 in 2015, 7.1 in 2016 and 15.6 in 2017.
Shareholders equity increasing steadily from 59.9 in 2013 to 84.1 in 2017. However in 2017, the grp proposes a right issues of up to 75.8mil at 0.25cents a share. (Any advice on right issues? What I understand is basically the grp is trying to raise capital??)
Net gearing 1.18 times 2013, 1.14, 1.17, 1.28 and finally 0.75 in 2017. 
Cocoa beans have also been cheaper in 2017, which increases the company gross profit due to improvements in processing margins.
https://s3-ap-southeast-1.amazonaws.com/investingnote-production-webbucket/attachments/5e17d546034e91ba5f69052b1135415fb048a5d4.pdf?1539568296
https://www.jbcocoa.com/upload/3715163150JB%20Foods%20Limited%20-%20Annual%20Report%202017.pdf
Abit of further info from the first link and also 2017 Annual report from the 2nd link.
 

Qi Jie replied 3 years ago

Not sure if my details are good enuff, so the first link shows more info of backgrd, industry overview and also financials to suffice you the details for your advice.

What attracts me is that it is a fairly small company that is still growing. So just to see what you will advice me and if there is any potential in it? Or I should not waste my time and move on with other companies.

Thank you.

Victor Chng answered 3 years ago

Hi Qi Jie,
 
Thanks for sharing the information. After reading what you had given me and doing some research, personally I think that this business is operating in a tough environment. There are two point that lead to my conclusion.
 
1.Cocoa beans price is generally very volatile, they are able to make better earnings now because the cocoa price is low at the moment. From my understanding of cyclical business, the low price will not last long. Hence, buying them now will increase the risk of investing significantly.
2.They have very low gross profit margin. At the low cocoa price, their gross profit margin are at the very highest of about 15% which is still low. That means that when the cycle will to turn, they are going to have a tough time. 
 

Qi Jie replied 3 years ago

Thank you Victor!