Period  4Q13/FY13

Actual vs. Expectations  The FY13 net profit of RM118.3m was in-line with the street and our estimates, making up 95% and 96% of the full year forecast of RM125.0m and RM122.7m, respectively.

Dividends  A final dividend of 2.5 sen and a special dividend of 3.75 sen was declared, bringing the total to 12.5 sen, as per expectations.

Key Result Highlights YoY, 4Q13 net profit declined by 46.7% despite revenue increasing by 7.6%. In particular, the Cans Division's PBT took a dive from RM43.1m in 4Q12 to RM21.4m in 4Q13 (-44.6%) amid higher production costs, a write-down of inventories and an impairment loss on assets. Meanwhile, the Cartons Division (PBT -76.8% YoY) was also affected by higher material and labour cost, in addition to the Division's Hanoi operation which incurred a loss of RM2.3m. The Contract Packaging Services Division was the only segment to register an improvement in PBT (from -RM1.2m in 4Q12 to RM0.2m in 4Q13) on improved operating efficiency, although the smaller contribution from this segment did little to mitigate the broader declines in earnings.

 For the full year, KIANJOO reported FY13 revenue of RM1,284.9m, a 10.6% YoY increase from RM1,162.8m in FY12. The improvement in topline growth was underpinned by the Cans (+12.3% YoY) and Cartons Divisions (+13.4% YoY), which were able to offset the declines in Contract Packaging (-25.4% YoY). Nevertheless, FY13 net profit decreased by 2.2%, largely due to a sharp drop in PBT (-36.6%) from the Cartons Division, in addition to a higher effective tax rate. The Cartons Division was affected by: (i) the implementation of minimum wage scheme in Malaysia, (ii) an upwards revision of minimum wages in Vietnam, (iii) a derivatives loss of RM3.3m during the year, and (iv) RM4.5m in losses incurred at the Division's Hanoi operation which commenced in August 2013.

Outlook  The immediate challenges faced by the Group are the implementation of minimum wages, rising material, electricity and other operating costs, in addition to the weakening Ringgit against the US Dollar. Nevertheless, the company has the resources to further improve its production operational efficiency and deliver future growth.

 On the other hand, the Board has agreed to accept the privatization offer made by Aspire Insight Sdn Bhd to acquire the entire business and undertakings of the company. With this, KIANJOO may be classified under PN17 due to insufficient business operations and being a “Cash Company” which prompts us to cease coverage on KIANJOO.

Change to Forecasts We maintain our FY14E and FY15E net profits of RM140.3 and RM153.8m, respectively.

Rating CEASE COVERAGE.

Valuation  We are ceasing coverage on KIANJOO as the company will be privatized by Aspire Insight Sdn Bhd at RM3.30. Our previous target price of RM3.16 was based on 10x Fwd PER.

Risks  Price volatility of raw materials.

Source: Kenanga