JB Foods (IPO)

JB Foods: IPO preview note. + Positive industry dynamics with global cocoa consumption expected to grow 4.7% p.a till 2014. With a CAGR of 4.7% between 2004 to 2010, Malaysia, who accounts for 7.8% and 39% of global and Asia’s Cocoa grinding volume respectively is expected to maintain its current growth trajectory + Dominant market share, with JB Foods controlling an approximately 13.3% market share of the Malaysia Cocoa market in an industry associated with high barriers of entry. With current production capacity at 60,000 tons and Utilization rates for FY11 at 98.4%, market share could increase if group successfully increases its capacity to a projected 85,000 tons. + Wide customer base and long term relationships with customers and suppliers effectively ensures the timely delivery of cocoa bean supplies, facilitated by JB Food’s location at a free trade zone within Malaysia and its close proximity to cocoa bean suppliers in Indonesia and emerging markets. - Key risks faced by the group includes exposure to price fluctuation of cocoa beans and cocoa ingredient products, exposure to foreign exchange transaction risks, the fluctuations in processing yield of cocoa beans, and disruptions and supply of raw materials. + Valuation is compelling, with group trading at a mere 5.7x FY11 P/E vs SGX listed peers of 15.3x and global peers average of 22x. Group has intentions to distribute up to 30% of FY12 net earnings as dividends, which could translate to a yield of at least 5.2%.