INVESTMENT HIGHLIGHTS

• FY18 earnings exceeded expectation

• Net profit for the year fell 26.7%yoy to RM46.6m

• FY19F net profit estimate revised higher by +10.6%

• Maintain NEUTRAL with adjusted TP of RM2.75 (previously RM2.09)

FY18 earnings exceeded expectation. Can-One Bhd’s (Can-One) net profit of RM46.6m for the full year surpassed our expectation, making up 107% forecast. The positive deviation can be largely attributed to lower than expected operating expenses. A dividend of 4.0sen was announced, which is within expectation.

Net profit for the year fell 26.7%yoy to RM46.6m mainly due to lower contribution by Kian Joo Can Factory (KJCF). Revenue rose 8.0%ytd to RM1.23b driven by all the divisions namely: general cans (+3.7%), food products (+12.5%), trading (+30.9%) and others (+20.0%). Pretax profit for the general cans segment fell 11.6% to RM13.7m, food products segment jumped 40.9% to RM71.1m and trading segment up by 10.9% to RM2.4m. Net profit, however, declined mainly due lower contribution from its 32.9%-owned Kian Joo Can Factory (KJCF). KJCF’s lower on-year profit was primarily due to pre-operating expenses amounting to RM20m at its Myanmar operations, high raw material (tinplate, aluminium and paper rolls) prices as well as unfavourable movement of derivative financial instruments.

4QFY18 net profit fell 26.0%yoy to RM13.0m mainly due to losses at KJCF and lower profit from the general cans division. KJCF contributed a loss of RM0.78m compared to a profit of RM15.3m a year ago. On the other hand, PBT for the cans division recorded PBT of RM4.5m (+265%yoy) due to higher sales and customer compensation. Meanwhile, PBT for the food products division jumped by 41.1% to RM15.8m.

MGO on KJCF. On February 14, Can-One shareholders had approved for the company to increase its stake in KJCF to 33.4% from 32.9% previously. The 0.49% stake was acquired for RM6.8m or RM3.10 per share. As Can-One’s stake in KJCF exceeded 33%, it has launched a mandatory general offer (MGO) to KJCF other shareholders at the same offer. The outcome of the MGO is dependent on the acceptance level of KJCF shareholders. We expect near term dilutive impact as borrowing cost may exceed earnings accretion from KJCF. Currently, we assume Can-One’s stake in KJCF at 33.4%.

Source: MIDF Research - 1 Mar 2019