A brand-new Kian Joo could potentially steal the limelight
in the current lacklustre market. This is following the entry of the two new
directors from Can-One into its board, which we believe could spark a new fresh
outlook and add strength to the direction of the company. Moreover, we believe
that the company’s downside risk should be supported by 6%-7% net dividend
yield. Including the potential capital appreciation, we are looking at a high
total return of 31% for the stock and thus it is likely to stage a re-rating. Hence,
we select Kian Joo as our 3Q2012 top pick for consumer F&B sub-sector. With
its sound fundamentals and vision of expanding into overseas market, we believe
Kian Joo would likely maintain its strong earnings of 16%-14% growth for
FY12-FY13E. We peg a new fair value of RM2.50 for the company (RM2.19 previously)
after rolling over our valuation basis to FY13. Our TP is based on an unchanged
PER of 8x.
A brand-new Kian Joo?
Following the exit of Dato’ See Teow Chuan, the new entry of two directors from
Can-One into Kian Joo’s board could potentially reinforce the outlook and
direction of the company. One of the new
directors – Yeoh Jin Hoe was the founder of several well-known companies
involved in the manufacturing sector, including Kaiserkorp Group (manufacturer
and distributor of King Koil mattresses), Agrow (M) (building materials
supplier) and Ibufood Corporation (local
food producer with the well-known IBUMIE brand). We believe the two new
directors will add value to the group’s current strength.
Bonus and right
issues? We understand that the proposed bonus issue and proposed
renounceable rights issue of warrants are now only pending the approval of
Bursa Malaysia as Can-One’s management is already now on the board together and
holds the majority shareholdings. In our view, this is in favour of Kian Joo’s
shareholders as the implementation of the exercise will allow a greater flow of
liquidity for the stock with the potentials for higher capital appreciation.
With the company now likely seeing the end of its shareholders tussle, the
market is likely to re-rate its valuation upwards.
Higher dividend yield
than the market. Kian Joo has been consistently
distributing about 50% payout in the past five years except for 2008 (when it
only paid out 40%). Going forward, we are expecting similar payouts with 13.7
sen and 15.6 sen dividends for FY12-13, which translate into good net dividend
yields of 6.8%-7.7%. This will support the downside risk of the company as
investors will receive at least around a 7% yield in return, which is much
higher than the net dividend yield for FBMKLCI and KL Consumer Index’ of
2.7%-2.9%.
31% total return.
Kian Joo is trading at a Fwd PER of 7x, which is lower than its 5-year average
PER of 8x. Given its ability to further improve its production and operational
efficiency to continue to deliver organic growth and expansion to regional
markets, including its existing operations in Vietnam as well as potential
expansions to Indonesia and Myanmar, Kian Joo is certainly a fundamentally
sound company with a 5-year net profit CAGR of 29% driven by the increasing
volumes from the aluminium cans and corrugated carton divisions. As such, while
we are maintaining our earnings
forecasts and also retaining our OUTPERFORM call on Kian Joo with a higher TP
of RM2.50 (from RM2.19 previously) after rolling over our valuation basis to
FY13. Our target price is based on unchanged PER of 8x. The stock offers a very
attractive total return of 31% from the current level and it is also poised to
stage a re-rating soon, in our view.
Source: Kenanga
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