Business Profile
JB Foods Limited’s core business is in the production and sale of cocoa ingredient products, namely cocoa butter, cocoa powder, cocoa liquor and cocoa cake. They have production facilities in Malaysia and Indonesia, each processing 85,000MT and 60,000 MT of cocoa beans per year. These products can be produced into Cocoa Liquor, Cocoa Butter, Cocoa Cake and Cocoa powder.
Source: JB Foods Limited- Annual Report 2018
SWOT Analysis
Source: JB Foods Limited- Annual Report 2018
Strength: JB Foods Ltd is able to provide an exhaustive product mix options to its customers, which has helped them to cater to various customers segments. They also seem to have strong brand recognition which has enabled the company to charge a premium as compared to their peers. The business also seems to have an extensive network that helps in delivering efficient services to the customers.
Weakness: JB Foods seem to have high reinvestment needs, as shown by their high capital expenditures and negative free cash flow for the year. Even if JB Foods carries a strong brand premium, the products still have to be priced very competitively since the products are more commoditized and there is small product differentiation. This means that suppliers might switch between products easily.
Opportunities: With the rise in the middle-income segment and growth in population in Asia, JB Foods seem well poised to grow their earnings. Moreover, since cocoa products are used for different F&B products, population growth should drive growth consistently for JB Foods.
Risks: Access to quality cocoa beans may be affected due to natural
climate changes. Global warming and the changing patterns of El Nino and La Nina may lead to cocoa production becoming unstable. Additionally, growing protectionism and the US-China trade war may lead to depressed earnings in the future.
Financials (Based on last Financial Year)
Income Statement
Source: JB Foods Limited- Annual Report 2018
There was recorded revenue growth of 10.7% to USD327.1 million and an
88.5% increase in net profit to USD26.8 million, from USD295.6 million and USD14.2 million in the previous corresponding year (“FY2017”), respectively. On the back of the higher shipment volume, the Group was able to benefit from economies of scale. I was surprised that the group was able to maintain a healthy level of profitability, despite selling products that are more commoditized. This could be a testament to management's strong focus on keeping costs low for operations.
Balance Sheet
The business seems to have weak short-term liquidity. The current ratio seems relatively low at 1.43, with quick ratio and cash ratio being low as well.
Also, compared to other businesses, the company holds a much higher amount of liabilities. This can be risky, as it is a sign of the number of financial obligations the company as to fulfil.
JB Foods also seems to be holding more debt on its balance sheet. However, their strong earnings seem to justify that they can repay their debt obligations on time.
I'm also pleasantly surprised that ROA, ROIC and ROE seems relatively high for the business model they operate in. This could be a testament to the relatively strong earnings of the business and how it is able to utilise their resources at hand to generate earnings.
Cash Flows
Based on free cash flows, the company seems to have weak cash flows. This is mostly due to high capital expenditures that the company has. Despite having strong earnings, their cash flows seem weak due to the need for high reinvestment to run operations. Even so, the company still quite a sum of dividends out to shareholders.
Business Profile
JB Foods Limited’s core business is in the production and sale of cocoa ingredient products, namely cocoa butter, cocoa powder, cocoa liquor and cocoa cake. They have production facilities in Malaysia and Indonesia, each processing 85,000MT and 60,000 MT of cocoa beans per year. These products can be produced into Cocoa Liquor, Cocoa Butter, Cocoa Cake and Cocoa powder.
Source: JB Foods Limited- Annual Report 2018
SWOT Analysis
Source: JB Foods Limited- Annual Report 2018
Strength: JB Foods Ltd is able to provide an exhaustive product mix options to its customers, which has helped them to cater to various customers segments. They also seem to have strong brand recognition which has enabled the company to charge a premium as compared to their peers. The business also seems to have an extensive network that helps in delivering efficient services to the customers.
Weakness: JB Foods seem to have high reinvestment needs, as shown by their high capital expenditures and negative free cash flow for the year. Even if JB Foods carries a strong brand premium, the products still have to be priced very competitively since the products are more commoditized and there is small product differentiation. This means that suppliers might switch between products easily.
Opportunities: With the rise in the middle-income segment and growth in population in Asia, JB Foods seem well poised to grow their earnings. Moreover, since cocoa products are used for different F&B products, population growth should drive growth consistently for JB Foods.
Risks: Access to quality cocoa beans may be affected due to natural
climate changes. Global warming and the changing patterns of El Nino and La Nina may lead to cocoa production becoming unstable. Additionally, growing protectionism and the US-China trade war may lead to depressed earnings in the future.
Financials (Based on last Financial Year)
Income Statement
Source: JB Foods Limited- Annual Report 2018
There was recorded revenue growth of 10.7% to USD327.1 million and an
88.5% increase in net profit to USD26.8 million, from USD295.6 million and USD14.2 million in the previous corresponding year (“FY2017”), respectively. On the back of the higher shipment volume, the Group was able to benefit from economies of scale. I was surprised that the group was able to maintain a healthy level of profitability, despite selling products that are more commoditized. This could be a testament to management's strong focus on keeping costs low for operations.
Balance Sheet
The business seems to have weak short-term liquidity. The current ratio seems relatively low at 1.43, with quick ratio and cash ratio being low as well.
Also, compared to other businesses, the company holds a much higher amount of liabilities. This can be risky, as it is a sign of the number of financial obligations the company as to fulfil.
JB Foods also seems to be holding more debt on its balance sheet. However, their strong earnings seem to justify that they can repay their debt obligations on time.
I'm also pleasantly surprised that ROA, ROIC and ROE seems relatively high for the business model they operate in. This could be a testament to the relatively strong earnings of the business and how it is able to utilise their resources at hand to generate earnings.
Cash Flows
Based on free cash flows, the company seems to have weak cash flows. This is mostly due to high capital expenditures that the company has. Despite having strong earnings, their cash flows seem weak due to the need for high reinvestment to run operations. Even so, the company still quite a sum of dividends out to shareholders.