INVESTMENT HIGHLIGHTS

• 1QFY19 earnings below expectation

• Reported profit for 1QFY19 rose +747.8%yoy to RM96.9m

• FY19E/FY20F net profit estimates revised by -10.0%/- 7.0% respectively

• Maintain NEUTRAL with adjusted TP of RM3.65 (previously RM2.75)

1QFY19 earnings below expectation. Can-One Bhd’s (Can-One) core profit of RM7.4m was below our expectation. The core profit excludes other gain amounting to RM252.3m arising from the corporate exercise. During the quarter, the company has consolidated the accounts of Kian Joo Can Factory (KJCF), which included a bargain purchase of RM308.28m.

Reported profit for 1QFY19 rose +747.8%yoy to RM96.9m mainly due to the consolidation with KJCF as well as gains from the bargain purchase. Revenue rose 25.9% to RM406.2m, which is also due to the merger with KJCF. On-year comparison for segmental revenue is not meaningful due to the reclassification following the consolidation.

FY19E/FY20F net profit estimates revised by -10%/-7% to RM50.0m/RM63.6 respectively. We expect the operating costs to remain high in the near-term before the company is able to reap benefits from the larger entity as restructuring and streamlining may take time. We also expect higher borrowing cost to partially offset earnings contribution of the enlarged group.

Maintain NEUTRAL with adjusted TP of RM3.65 (previously RM2.75). Our new TP is derived from 0.7x FY20F price-to-book, which is in-line with its 2-year average. The change in valuation method is mainly due to near-term anomalies arising from the merger, which is not comparable based on a year-on-year basis. We are Neutral on the stock at this juncture due to the recent jump in share price that led to limited upside in returns.

Source: MIDF Research - 31 May 2019