Can-One Bhd worth more than market value

Can-One Bhd, which once hogged the limelight when it battled to acquire the 32.9% stake in Kian Joo Can Factory Bhd from the See family, probably warrants investors taking a second look at this packaging company.

Being the single largest shareholder, Can-One’s investment is riding high on the rally of the share price of Kian Joo, which commands a 16% share of the domestic aluminium can market.

Kian Joo’s share price marched to its historical high of RM3.27 last week from RM2.10 in January. Year to date, the stock has gained nearly 50%.

Its block of 146.13 million Kian Joon shares is currently valued at RM476 million. The amount is equivalent to nearly 93% of Can-One’s market capitalisation of RM513.6 million based on last Friday’s closing price of RM3.37.

Can-One’s profitable core business is only valued at RM37.6 million, or 24.7% per share based on a share capital of 152.4 million shares.

Can-One’s share price has also gained about 43% from a low of RM2 in February.

For the six months ended June 30, Can-One posted a net profit of RM35.2 million compared with RM126.25 million in the previous corresponding period. The big fall in earnings was due to the hefty one-off gain of RM103.8 million from its acquisition of the stake in Kian Joo in the previous financial year.

To annualise its six-month earnings, Can-One’s net profit is estimated at RM70 million, or earnings per share of about 45.9 sen.

“I don’t see why Can-One and Kian Joo can’t be trading at a higher PER [price-earnings ratio]”, said TA Securities, citing comparisons to other packaging companies like Daibochi Plastic which is trading at a PER of 16 times.

Can-One has two core businesses — the manufacture of packaging products such as jerry can, and the manufacture of dairy and non-dairy products, which contribute up to 60% in revenue.

TA Securities sees Can-One a fundamentally good company, with organic growth or internal expansion from its canned food manufacturing business. “Organically, Can-One has much to offer”, said the research house.

It highlighted that the additional capacity from a new line set-up last year is expected to “spill over” to this and next year, and will drive its internal expansion of the production of its food division business.

That, coupled with associate earnings contributed from Kian Joo, should bode well for Can-One.

For Can-One’s second quarter ended June 30, 2013, Kian Joo contributed RM8.1 million in profit and RM18.3 million in dividends for its financial year ended 2012.

One concern that may have made investors shy away from Can-One is its large borrowings of RM497 million as at June 30, attributed by short-term borrowings of RM190 million and long-term borrowings of RM307 million, of which RM305.7 million was in term loans. Its cash and bank balances were at RM78 million.

It has net gearing of 0.97 times, which many may find it uncomfortably high.

Year-to-date, its earnings before interest, tax, and depreciation stands at about RM64.5 million, against interest expenses of RM9 million. This translates into an interest coverage of about seven times.

On its stake in Kian Joo, moving forward, analysts are upbeat on its prospects. Investment analysts who track the can maker have “outperform” recommendations.

Kian Joo’s net profit grew 35% to RM65.9 million, or 14.09 sen per share, for the six months ended June 30 from RM48.8 million, or 10.28 sen per share, in the previous corresponding period. Revenue rose to RM623.2million from RM571.3 million.