Wednesday, July 18, 2012

JB Foods Limited

JB Foods Limited
Offer Price: $0.30
Offer Size: 84m new shares + 16m vendor shares
Public Tranche – 3m shares
Placement Tranche – 97m shares
NAV per share (post-IPO): S$0.159
Historical PE: 4.5x (FY11)
Market Cap (post-IPO): S$120m
Open: 13 July 2012
Close: 19 July 2012, 12.00 noon
Trading: 23 July 2012, 9.00 a.m. (on “ready” basis)

JB Foods Limited was founded in the 1980s and started as a processor
of wet cocoa beans to dry cocoa beans. Today, the company are one
of the major cocoa ingredient producers in Malaysia, with a production
capacity of 60,000 tonnes of cocoa bean equivalent per year. In FY2010, 
JB Foods’ cocoa bean processing accounted for 14.6% of the total cocoa
beans processed in Malaysia

JB Foods' principal activities comprise the production and sale of cocoa
ingredient products, namely cocoa butter, cocoa powder, cocoa
liquor and cocoa cake. Cocoa powder and cocoa butter are the company
two (2) key products that comprised more than 90.0% of the revenue for
the Period Under Review.

The company had recorded a net profit of RM 51 million in FY2011 with a
revenue of RM 690 million and that is net margin of 7.4%. JB Foods will raise
about S$23 million from the listing of shares and they will use the 8.3 million
of the net proceeds to repay bank borrowings and about 15 million for General 
working capital and to fund acquisitions, joint ventures and/or strategic alliances
when opportunities arise.
In respect of FY2012, the company intend to recommend and distribute not
less than 30.0% of the audited combined net profit attributable to Shareholders
as dividends, From 1 January 2012 to the Latest Practicable Date, the company
order book based on confirmed orders was approximately 50,406 mt, of which 
approximately 20,502 mt had been fulfilled and RM250.8 million of revenue had 
been recognised. The remaining orders of 29,904 mt will continue to be delivered
continually on a monthly basis until the end of 2013.

JB Foods have been granted call options to acquire equity interests in PT Koko
(a cocoa liquor processing facility in Maspion Industrial Estate in Gresik, Indonesia) and Kakao GmbH (a cocoa butter melting, deodorising and warehouse facility in Valluhn-Gallin, Germany). The construction of both facilities is expected to be completed by the second half of 2013.

Based on the offer price of 30cts, Neo Group with an NAV of 15.9cts will have a
89% premium of Invitation Price per Share over the Adjusted NAV per Share. 
This is a very OK valuation of the stock offer price. Also it is worthy to note that
the new investor will be paying 30cts a share while the major shareholders
are paying 12.9. I believe that investor are getting the share at a very reasonable
offer price.
I have been through the prospectus a couple of times and I am pretty excited
about the prospects and upside potential of the company. I like the sector it is
in although the competition is fierce, but I can see that JB Foods can only be
bigger and benefited from its expansion. It has a peer that is also listed in 
SGX and it is none other than Petra Food which is very much bigger than
JB Foods with a market cap of about $1450 million as compared to $120 million
for JB Foods and has more downline products. In a research report by NRA on
21 May 2012, Petra Food is trading at a P/B of about 3.6 times and it forecast
the company will be trading at a P/E of 21 times. In another research report by
SIAS Research on 11 May 2012, it forecast a P/E of 17.3 times and a P/B
of 3.7 on Petra Food. Base on the figures from the prospectus, JB Foods are
trading at a P/B of about 0.89 times and a historical PE of 4.5 times. Being 
small, JB Foods should trade at a substantial discount of the bigger peer, so
we just give it a 50% discount on both the P/B and P/E ratio. A 50% discount
on the P/B (1.8 times) will give the price at near to 45cts and 64cts at a P/E 
with a 50% discount ((21+17.3)/2/2). This is just my personal estimate on the
company's prospectus and I am making a lot of assumptions in my calculation
but it roughly show the great upside potential that the company has.
I am looking at a 50-66% upside on its debut if the public and private placement
shares are well-subscribed.  

When I was writing my personal view for the IHH Healthcare IPO, I stated that
"One thing to note will be if you are unsuccessful in your IPO application or only
receive a portion of what you applied,the money will only be returned or refunded 
on the 23th July. This is to say that your application money will be "stuck"for 
>2 weeks. If you need to use some money within this period, please do not show
hand and then all got no money to use or to apply for the next IPO, JB Foods, 
which should be out soon."

What a coincidence, JB Foods came out at the "wrong" time and I wonder 
whether the public tranch can be heavily subscribed. I know of readers who really show-handand apply for IHH and now only left a small sum to apply for JB Foods.
It's Ok, use whatever it is left to subscribe for the IPO and I believe that you will be rewarded. JB Foods will debut on Monday, 23th July and IHH Healthcare will
debut on 25th July, it should have some spill-over effect on JB Foods. In a couple
of  weeks time, another IPO, its peer and competitor in the Cocoa business 
Guan Chong, which is related to JB Foods will be doing a dual listing in SGX, 
and I believe JB Foods should be in  the wave again. 

My personal advice on the JB Foods IPO is a SUBSCRIBE and if you can afford
to hold, please grab it tightly until the listing of Guan Chong and even longer.

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