INVESTMENT HIGHLIGHTS

• 9MFY18 results below expectation

• Earnings for 9MFY18 dropped by 26.9% yoy mainly due to lower contribution by Kian Joo Can Factory

• FY18F/FY19F net profit estimates cut by 30.4%/30.2%

• Maintain NEUTRAL with adjusted TP of RM2.09 (previously RM2.60)

9MFY18 results below expectation. Can-One Bhd’s (Can-One) net profit of RM33.6m for the cumulative period missed our expectation, making up 54% of our full year forecast. As expected, no dividend was announced.

Earnings for 9MFY18 dropped by 26.9% yoy mainly due to lower contribution by Kian Joo Can Factory. Net profit for the period declined mainly due to lower net profit at its 32.9%-owned Kian Joo Can Factory (KJCF). Contribution from KJCF for the quarter dropped due to losses from KJCF’s Myanmar operations and raw material prices that remain high as well as the lag in cost pass through. Meanwhile, Can-One’s sales improved due to the 15.9% increase in its food division to RM634m and 25.6% jump in its international trading division to RM98.2m. Revenue from the general cans segment was flattish at RM356.5m.

3QFY18 net profit fell 31.0%yoy to RM11.0m mainly due to lower contribution from KJCF and lower sales and profit from the can division. Contribution from KJCF fell to RM0.9m from RM3.0m yoy. Can division recorded PBT of RM0.6m (-94% yoy) due to higher raw material and production overhead costs while the trading division was largely unchanged. On the other hand, the PBT for its food division is up by 47.8% to RM17.0m.

FY18F/FY19F net profit estimates cut by 30.4%/30.2% to reflect lower contribution from KJCF and its can division. Due to our adjustments, FY18F/FY19F earnings estimates are adjusted to RM43.5m/RM50.2m.

Maintain NEUTRAL with adjusted TP of RM2.09 (previously RM2.60). Our TP of RM2.09 is based on 8x FY19F EPS of 26.1 sen. Our TP is adjusted due to the adjustment in our earnings assumption. Valuation method of 8x PER (mean valuation) is unchanged. We are Neutral on the stock due to its lacklustre near-term outlook.

Source: MIDF Research - 29 Nov 2018