Yahoo Finance
Filing
Dec. 04, 2020
2021 Q2 Data, Year-end: Mar. 31
Price: $5.4 Shares:11.3m, Cap: $61m
2021 Q2 Data, Year-end: Mar. 31
Price: $5.4 Shares:11.3m, Cap: $61m
1.Business
(1) History
(1) History
The company was founded by 3 Hongkongers mainly Samuel(Lin Hung) Choi in the year 2000 in Jordan. Early that year, Jordan and the US signed a free trading agreement that enables Jordan companies to sell to the US duty-free. The company opened its first cloth factory in Jordan which produces a Jacket for the North Face brand. It had just 2m in sales at the beginning. It has grown very well over the years.
By the fiscal year 2018, it had 70m in revenue and close to 10m net income for 3 years in a row. It has 3 factories and 3000 workers with a capacity of around 5.9m pieces/year. It applied IPO in the same years which raised $10m at around $7/share.
Since then the company continues to grow its business in fiscal 2019 with 85m in revenue. However, its margin was down from over 25% to 22%. also, its SG&A raised from $6m to $9m mainly caused by going public, etc. As a result, its real profit was down to $8m in 2019.
In fiscal 2020, the company started to utilize an acquired paramount facility which added 1000 workers in that year. It generated 93m in sales in 2020 which didn't meet its projection. The new factory seems dragged the business quite a bit. Margin contracted to19.3%, also SG&A raised another $1m to $10m which mainly caused by boarding these new workers.
In the first 2 quarters of fiscal 2021, the company's revenue was down at around 10% vs last year. It generates around $3.8m in real income vs $5.4m last year. The share price was down from the $7 range at the time of IPO to the current $5 range.
(2) Major business
The company manufactures jackets and T-shirts etc for some very known brands like North Face, New Balance, Walmart, etc. North Face so far is still its major customer with counted around 80% of its total revenue. Also, it has the highest margin which should be above 25%. It is likely that the company has lowered its margin for North Face products in the past several years.
Revenue from other customers than North Face had also grown nicely from 7m in fiscal 2016 to over 20m in fiscal 2020. These apparels like T-Shirts have a much lower margin, maybe just around 15%.
Its most profit is usually earned during the first half of the fiscal year. In the second half, North Face usually will reduce order size significantly. The company will tend to use the spare capacity for other customers which has a much lower margin. Q4 is the lowest season which usually incurs losses.
Currently, it has 5 factories with around 4000 workers. As required by the Jordan law, 75% of these workers are foreign workers from Bangladesh, and Srilanka, etc. The first 3 factories mainly are for the North Face brand. The 4th one is for new customers. The 5th is jointed owned by the company and the Jordan government. It is working on PPE stuff currently.
(3) Debt and cash
At the end of fiscal Q2 2021, it has around $27m in cash and a very small line of credit balance.
(4) Industry
Jordan's annual export to the US is just about 2B/year. Among which half are from apparels. The industry is very supported by the Jordan government. Because of the zero-tariff to the US, apparel companies in Jordan can focus on qualities while in other countries they might try to avoid higher tariffs by using different materials which leads to lower product quality.
2. Management
At the end of fiscal Q2 2021, it has around $27m in cash and a very small line of credit balance.
(4) Industry
Jordan's annual export to the US is just about 2B/year. Among which half are from apparels. The industry is very supported by the Jordan government. Because of the zero-tariff to the US, apparel companies in Jordan can focus on qualities while in other countries they might try to avoid higher tariffs by using different materials which leads to lower product quality.
2. Management
Samuel(Lin Hung) Choi: He is the original founder of the company. Previously he worked in the bank and textile industry from 1987 to 2000. He is still holding 4.6m shares around 40%. His compensation was low before the IPO. Raised to 300k for the latest two years. The other two original founder holds another 36%. In total, probably less than 25% of the total shares are in the float.
3. Financial data
4. Valuation and comments
(1) The company is currently trading less than 12 times in P/E besides a large cash balance. The market is expecting the company will continue to go downward in profitability.
(1) The company is currently trading less than 12 times in P/E besides a large cash balance. The market is expecting the company will continue to go downward in profitability.
(2) The SG&A raise in the past 3 years should be stabilized at the current level.
(3) It seems like the company has no problem finding new customers whenever it has extra capacity caused by North Face reduced its order from them. However, the replacement usually has a lower margin. In the latest two quarters, revenue from North Face has reduced to 75%. The trend is likely to continue.
(4) The company is still looking to expand its capacity either by acquisition or by building its own new facilities.
(5) Currently, the company is paying a 20c/year dividend which is close to 4%.
5. Risk
(1) The North Face sales concentration by far is the biggest risk for the company. Although it is trying to diversify from it. It seems not successful so far with North Face's revenue still counts close to 80%. This year, North Face has temporarily reduced its order by around 20%. It will likely continue to reduce orders from JRSH for the next one year. However, as indicated by the company, revenue from other customers will likely offset quite some of it. For the second half of 2021, it is expected to at least keep the same revenue level as last year.
(1) The North Face sales concentration by far is the biggest risk for the company. Although it is trying to diversify from it. It seems not successful so far with North Face's revenue still counts close to 80%. This year, North Face has temporarily reduced its order by around 20%. It will likely continue to reduce orders from JRSH for the next one year. However, as indicated by the company, revenue from other customers will likely offset quite some of it. For the second half of 2021, it is expected to at least keep the same revenue level as last year.
(2) North Face's order so far has the highest margin for the company. It is very likely that the company will increase revenue from other customers who have lower revenue. Overall, its margin will have downward pressure. It would be a challenge for the company to achieve a 20% margin going forward.
(3) Its SG&A raised quite a bit following the IPO. It is possible that the company won't be able to stabilize it at the current $10m levels.
6. Conclusion
Overall, the company is managed quite well with quite good growth potential. Currently, it is kind of experiencing a hiccup in growth. The current price is good if the company can keep its current business stable. However, it is hard to tell when it can grow its profit again.
7.Links
