INVESTMENT HIGHLIGHTS

• 1HFY18 results below expectation

• Earnings for 1HFY18 declined by 24.7% yoy

• Trim net profit estimates by 4.0% to reflect lower contribution from KJCF

• Downgrade to NEUTRAL from BUY with lower TP of RM2.60 (previously RM2.71)

1HFY18 results below expectation. Can-One Bhd’s (Can-One) 1HFY18 net profit of RM22.6m missed our expectations, making up 35% of our full year forecast. The negative deviation was caused by lower than expected contribution from Kian Joo Can Factory (KJCF). No dividend was announced, which is within expectation.

Earnings for 1HFY18 declined by 24.7% yoy due to lower contribution from KJCF. The net profit of RM22.6m came on the back of revenue that grew 12.9% yoy to RM606.8m. However, earnings did not rise in tandem with revenue mainly due to the decrease in net profit at its 32.9%-owned Kian Joo Can Factory (KJCF). Contribution from KJCF for the quarter dropped due to higher raw material costs and the continued losses at its cartons division. That said, sales for the all the divisions at Can-One grew, namely: general cans (+4.0%yoy), food (+24.5%yoy) and international trading (+42.1%yoy).

2QFY18 net profit fell 25.3%yoy to RM11.2m mainly due to lower contribution from KJCF and lower sales and profit from the can division. Note that contribution from KJCF fell to RM1.4m from RM4.8m in 2QFY17. Meanwhile, the cans division recorded sales and PBT of RM120.7m (-7.7% yoy) and RM0.3m (-96%) respectively, but they were largely offset by the increase in the food and trading division. The decline in cans division was largely due to the rise in raw material prices.

Trim FY18F/FY19F net profit estimates by 4.0%/4.6% to reflect lower contribution from KJCF as some of its raw material prices such as aluminium prices remain elevated. Due to our adjustments, FY18F/FY19F estimates now come to RM62.5m/RM71.9m.

Downgrade to NEUTRAL (from BUY) with adjusted TP of RM2.60 (previously RM2.71). Our TP of RM2.60 is based on 8x FY18F EPS of 32.5 sen. Our valuation method of 8x PER is unchanged based on Can-One’s two-year average PE band. While Can-One’s prospects are improving, we expect its cans division and KJCF’s performance to be lacklustre in the near-term.

Source: MIDF Research - 24 Aug 2018