Posted by kcchongnz > Apr 3, 2013 12:21 PM

Cold Eye’s 5 yardsticks for Johore Tin (JT) 

Yardstick 1: ROE 
JT reported an earnings of 23.1m for the common shareholders, or EPS 24.7 sen for the year ended 31/12/2012. With its net asset backing per share of 1.67, ROE is 17.6% which is better than the benchmark of 15%. This is good as it was achieved with a low total debt of 0.16 to assets. 

Yardstick 2: Cash flow and free cash flow 
The cash flow from operations (CFFO) is 16.6m. This is 72% of its earnings of 23.1m. This shows the quality of the earnings is not that great. After spending 29m in capital expenses, there is a free cash flow (FCF) of 7.6m. 3.5m dividend was paid out from the FCF . This FCF is at 3% (<5%) of its revenue which is a little on the low side. As JT is growing very fast in revenue and earnings, these little low cash flows are considered tolerable. 

Yardstick 3: PER 
JT is trading at 1.73 now. With EPS of 24.7 sen, the PE ratio is only 7.0 (<10). This is a reasonably low PE and considering that it has a healthy balance sheet with excellent earnings and growth. 

Yardstick 4: Dividend yield 
JT paid a dividend of 3.8 sen for last financial year, or a dividend yield of 2.2%, a little low. 

Yardstick 5: NTA 
The net asset backing per share of JT is 1.67. Hence at a share price of 1.73, the price-to-book value is 1.1 0 (<1.5). 

Yardstick 6 (Non Cold Eye yardstick): Growth 
The CAGR of JT’s revenue and net profit for the last three years was 32% and 67% respectively. Last year’s growth was 84% and 113% respectively. This is a very high growth. 

JT meets most of the criteria of Cold Eye as an investment grade stock except for cash flow and dividend yield. Yes the most attractive attribute of Johore Tin is its expected high growth for the next few years due to its acquisition of Abel Dairies, and yet it is selling at a reasonable valuation.