Journey to Wealth
Kian Joo Can Factory - OUTPERFORM - 28 May 2012
News Kian Joo has proposed final single tier dividend of 2.5 sen per share and a special single tier dividend of 3.75 sen per share for FY11.
The payment of the dividends is subject to shareholders' approval at the annual general meeting of the company on 18 June 2012.
Comments The total dividends of 12.5 sen for FY11 came in slightly below our expectation of 13.75 sen. However, it still translates into an attractive dividend yield of 6.6%.
The payout ratio was slightly lower in FY11 (50%) as compared to FY10 (57%). This was because FY10 was an exceptionally good year with enhanced margins of 10.3% (vs. 9.7% in FY11) and better NP growth of 109% YoY (vs. 3% in FY11).
Outlook Dividend-wise, we are expecting a higher FY12E total dividend of 13.7 sen, translating into an attractive dividend yield of 7.3%.
Fundamentally, we remain positive on the company's ability to further improve production and operational efficiency to continue delivery organic growth as well as expansion into regional markets.
Forecast Maintaining our FY12-13E NP of RM122mRM138m. Strong growth is expected, mainly to be driven by the increasing sales (double digits growth) from the aluminium cans and corrugated carton divisions.
Rating MAINTAIN OUTPERFORM
Valuation Despite the ongoing legal tussle, we observe that the company's operations continue to function normally. In fact, the top line is growing healthily. As a result, we believe the company is still undervalued, trading at near trough Fwd PER of 6.9x. Thus, we are maintaining our OUTPERFORM rating on Kian Joo with an unchanged TP of RM2.19 given the potential total returns upside of 23% to our TP of RM2.19. Our TP is based on 8.0x Fwd PER over FY12 EPS of 27.4 sen.
Risks Global economic uncertainty could drive a price upswing in commodities, which will in turn hit the company's earnings.
Source: Kenanga
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