JEL (Consumer Products, Distributor)

My investment in JEL... unfortunately again, it was influenced by the positive writings and investment made by Wallstraits.

My own projection of the intrinsic value of JEL in Sep'03 (pre-bonus issue) was about 33.95 cts vs my purchased price of 31 cts (PE = 9.8) for 8 lots on 19 Sep 03. This purchase was spurred by 05 Sep 03 WS purchase of 225 lots @ 32 cts and another 25 lots @ 30.5 cts on 10 Sep 03. However, my holding period for my first purchase was relatively short as I took a quick profit of $155.72 on 24 Sep 03 probably because I wasn't too convinced about its prospects.

WS took another block of 750 lots @ 35 cts and 80 lots @ 30 cts on 20 Oct & 12 Nov 03 respectively, self reinforcing its optimisim in this company. Encouraged by Sage's latest moves, I took up 8 lots @ 32 cts on 10 Nov 03 with short term view in mind, which I did sold at a profit of $115.44 on 15 Jan 04 @ 32 cts. However, with WS showing so much confidence in this company, I'm quite nervous about losing the opportunity in riding on the growth of this company. The price moved up after my latest disposal and I took another position at 40 cts on 12 Feb 04. In Mar04, the company gave a bonus issue of 1 for 5 stocks and I bought another 4 lots @ 28.5 cts on 24 Aug 04 to round up my stake to 10 lots, with a opportunistic view to take profit when chances arise. During this period, WS took one more purchase, last for year 2004 @ 32 cts for 32lots on 10 May 2004.

Perhaps, again, due to my lack of convictment about this company, I sold half of my stake on 13 Jan 05 @ 33.5 cts for a small profit of $61.12. Over the period, I received some dividends. However, I bought back the same lots @ 28 cts on 8 Mar 05 to round up my stake to 10 lots after the company annonced a 1 for 10 bonus issue.

The top line of JEL did grow nicely from 2003 to 2004, from $116M to $143M, however, its net profit did not fare as good, only increase from $6.22M to $6.58M. Since its IPO, the company had secured some new distributor rights and had completed a new multi-purpose building for office and warehousing, and sold it to REIT for a gain of S$4M this year. However, the share price languished probably due to the poorer than expected operating results and the unfavourable statements about its analog carmera business. The share price hit a low of 17 cts before rebouncing to 20 cts on 30 Dec 2005, on Sage's purchases and top-pick article open to public.

Sage has a intrinsic value of 52 cts (DCF) by project a 10-year 12% annual growth, which I find it to be overly optimistic. My own review only gives a 22.3 cts intrinsic value compared to my average price of 27.4 cts. Of course, I will be most happy if Sage's projection did come true but I shall not take up any further stake until the next result is seen, or until the share price touch the recent low again.

My major concern about this company is the increasing interest rates which is going to eat into its operating profits due to its business model of having short-term financing to purchase the goods no doubt the sales and lease back may release some cash back to the company for operating purpose.

Below are some interesting postings forumers in WS:

d.o.g. posted on 5-8-2005 at 01:23 AM
This is unfortunately quite likely. JEL is competing in a high volume, low margin segment. Not only does it have to deal with current competitors, but all of last year's name-brand mid- and high-end models, which are now discontinued, are still on retailer shelves, and they will be discounted and competing with JEL's cameras. To make things worse, digital cameras are still evolving rapidly, which means JEL has to make continuous investments into R&D, unlike film cameras, where improvements have slowed markedly and the products have a long shelf life.

The biggest strides the last few years have been in sensor resolution (megapixels). Going forward, sensor technology will continue to evolve (lower power, higher sensitivity, lower noise) as will lens design (less distortion, wider apertures), LCD technology (lower power, higher brightness) and battery technology (less weight, more power, faster recharge).

For the most part JEL can source components off the shelf, but it still has to design, prototype and finally (through subcontractors) manufacture the cameras. In other words, they're trying to be like TT International and its Akira brand - which IMHO isn't all that great a role model.

In a "value for money" strategy you never have pricing power - price just a few dollars too high, and consumers will reach for the familiar big names. Without pricing power, it is very hard to grow faster than the general economy - which in turn caps the returns that can accrue to an investor. Rapid growth must then come from operational efficiency - but this can happen only if the company is truly outstanding compared to its competitors e.g. Wal-Mart vs Safeway or Albertsons. Is JEL truly super-duper in this respect? IMHO they're good, maybe even very good, but perhaps not truly outstanding - and with margins so thin, they need to be head and shoulders above everyone else to really prosper. Otherwise, they'll merely survive and get by.

chigi posted on 30-12-2005 at 02:02 PM

I sincerely wish you all good luck with JEL. Who knows what is in store for JEL!

However, I give JEL a miss and my reasons to avoid are -
1. Distribution is a second-grade business, highly dependent on principals.
2. It is a low-margin business. As the barriers to entry are low, the margins may most likely slide ever than rise.
3. Principals always go with multiple distributors. They have a cake and eat it too. Hence buy principals if you can.
4. I learnt some lessons from owning Telechoice (a huge distributor of handsets) and Thakral (a huge distributor of consumer electronics in China). I did not benefit much from owning them, although I collected decent dividends, no more vested in them now!
5. The business is prone to currency risks and also country/economy risks

I hope the above points help you in making more informed decisions/expectations on JEL!