Investing in D&O for the brighter future

Today I want to recommend 1 good stock to all my fansi. For those already bought Johotin since 85 to 90 cents region, congratulation. Please continue to hold on to Johotin because the potential of this share will only continue to show over the years. As for me, I am still holding on to my dear Johotin and will probably hold on to it for another couple of years because Johotin will truly  blossom with the right management, right product, right market and right investment.

However, I do not discount there are people who had already cashed out on Johotin since it has appreciated more than 20% from the base. Since you guys are likes to invest at the base, or near the base level, probably I would like to show you this potential share as well.

Now, this share that I am going to recommend is called D&O Green Technologies Berhad. Short form is D&O.

What is so special in this share that I want to recommend is because the technical chart is showing a good entry point for strategic investor based on technical outlook.

As you can see, based on the 2 years chart outlook, the share price of D&O rebounded strongly on the long term support line. Overall, the share is still showing good momentum with strong institutional buying in that is keeping the share for long term.

So why 2019 is a good year for D&O ?

Firstly, new factory in Batu Berendam, Melaka is slated for operation end of 2018, and will be catering for new capacity which can cater for 4 to 5 years of growth. Currently, the growth rate in automotive LED is 15% per annum. With the new factory, D&O can look for growth rate of 20% to 30%, boosting the bottom line figure.

Secondly, D&O is able to command a good gross margin of 25% for it's LED product. The product that D&O manufacture are no OEM, but OBM (Original Brand Manufacturer), where D&O owns the patent, design and brand. This will open door of opportunities for D&O to lease their intellectual property to other manufacturer for OEM manufacturing of their goods.

Thirdly, D&O is major supplier for Volvo, which is owned by Chinese company Zhejiang Geely. Currently, China is the fastest country in implementing energy efficient, environment friendly products. Hence, partnering with China Zhejiang Geely is a strategic move that will enable the product offering into the market faster, with China as the primary market.

So as a conclusion note and summary

1. D&O had a bright prospect with automotive LED lighting, where current global usage is only 3%. Projected to see automotive LED usage to reach 15% on 2021

2. D&O new factory ready to cater for new demand, project company growth rate at 20 to 30%

3. Technical chart suggesting a good buy in price at long term support line

Source and additional reading on D&O

1.) https://themalaysianreserve.com/2018/02/22/green-technologies-enter-local-market-via-geely/

2.) http://www.theedgemarkets.com/article/do-attractive-target-amid-industry-consolidation

Please do your own due diligence in any investment decision.

You are not a good enough investor until you see this

Red Alert to all Investor, Trader and Punter of KLSE.

Today need to informed everyone of this champion stock of 2019, which is Johotin.

Johotin sound like a tin manufacturing company for you at first sight. While this is not entirely wrong, it is important to know that Johotin already diversified their core business into F&B manufacturing which focuses on dairy related products. Now, the revenue and profit generated from diary division had surpassed the one from tin manufacturing.

Taken out from the previous quarterly report, you can see that F&B contributed 75% on revenue, and around 67% on profit before tax. This is to note that contribution from the F&B division do not resemble a full capacity operation mode.

The very reason I am writing this is to tell about the potential of the investment in Mexico that will give Johotin the ultimate bottom line boost in the future revenue and profit.

https://www.thestar.com.my/business/business-news/2017/04/12/johore-tin-unit-to-make-us2mil-investment-in-mexico/

Although this expansion is very big and crucial for Johotin, but it had been lacking of coverage from analyst, which is why I am here to do the noble job of informing all the investor, trader and punter alike to be on the look out for Johotin.

First of all, currently all the operation are processed in Malaysia, which means milk powder are sourced from overseas, tin plates locally, and sugar are purchased on Malaysian market price.

According to the local prices, 1kg of Sugar will cost RM 2.85 for coarse sugar, and RM 2.95 for fine granulated sugar. But most of you do not know that at the international level, sugar price is actually trading around RM 1.20 per kg. This means that manufacturer in Malaysia is paying more than double on the international price.

Sugar prices had been in a depressed mode, and is trading at the range of 13 cents for 1 pound, which is around RM 1.17 per kg (based on exchange rate USD 1 to RM 4.10)

If Johotin is to move it's production into Mexico, the raw material of Sugar will be greatly decrease, hence increasing operating profit. It makes good sense to set up factory in Mexico because Mexico is the top 10 (rank no.6) in sugarcane production, which will put sugar trading at competitive prices.

Question now - If Johotin sugar price input from the current RM 2.85 shrink down into RM 1.20 per kilogram, what is the positive impact in terms of operating profit.

To answer you this good question, I have to show you some projection which is done by professional analyst. This is taken from TAOnline research paper.
http://eas.taonline.com.my/research/Dco/CR_7167_171025.PDF

For every 5% increase in raw material cost within the F&B segment, Johotin net profit is expected to decline 34%.

So, if raw material decrease 5%, will net profit increase 34% ? I think probably not.

But, what if raw material decrease 57%, from RM 2.85 to become RM 1.20 per kilogram ? Will Johotin profit at least increase 50% ? I believe that this can be within the range of expectation.

As I had already outlined, not many analyst and investor noticed about Johotin coming future potential and earning power. At RM 1.20, I think Johotin is still very reasonably undervalued and much more potential to be unveiled in the future.

I had to be honest that I had held Johotin for more than 1 year, buying from RM 1.1x until 0.8x and is still buying and keeping, because I will definitely believe that Johotin will be the future Dutchlady in the making. Solid business, steady revenue and steady dividends.

My advice to you is to grab it before fund manager and unit trust start to add Johotin into their fund portfolio.