Can-One, a can packaging and food products manufacturer, has
been gaining attention in the market since it took a stake in Kian Joo. The
company also has an existing high growth food products segment, evident by its
recent strong 1Q12 results (before factoring
in its Kian Joo). We like its business model, where its general cans segment
with higher margin enjoys a spillover effect from its fast-growing food
products segment. Moreover, there could now be potential synergies between
Can-One and Kian Joo, which may help both companies to grow further locally and
regionally especially given that they are both led by experience and professional management
teams. Based on our earnings projections and after factoring in its recently
acquired 32% Kian Joo stake, we reckon the stock should be valued at RM4.95, representing a substantial 97%
capital upside to its current share price. Note that even without the Kian Joo
stake, Can-One’s existing business itself is worth RM3.15, assuming a PER of just 8.0x PER on Can-One’s FY13E net
core earnings.
General cans growing
together with the fast growing food products. Can-One acquired F&B
Nutrition, the original equipment manufacturer of sweetened condensed milk,
back in 2006 and this has seen a strong value-added impact to the group.
Evidently, the revenue contribution from its food products segment to the total
sales had increased from zero to 60% within a short time span of 6 years
representing a 5-year CAGR of 107%, and has for the first time in 2011,
contributed more than the general cans sales to the group. Furthermore, as its
food products are carried in Can-One’s own manufactured cans, this also
actually helps its general cans segment to grow further, which has a higher
margin of ranging from 7% to as high as 30% (quarterly basis) as compared to
the food products segment (2%-7%).
More to come? We
do not rule out any potential synergies between CanOne and Kian Joo after the
acquisition of the associate stake and with two directors of Can-One now
sitting on the board of Kian Joo. Indeed, considering that Can-One is one of
the market leaders of general cans while Kian Joo is one of the market leaders
of aluminum cans in the domestic market, many synergies between the two could
be reaped in the future, which will likely help both companies to grow further
locally and regionally together especially under the stewardship of their
professional management teams. For instance, there could be cost savings where
raw materials could be bought in bulk to bring down the cost per unit, which
would help both companies to expand their margins as well as bottom lines.
New jewel?
Can-One’s revenue grew by 39% YoY while its core NP more than doubled to about
RM10.1m in 1Q12. Thus, we have conservatively estimated core NPs of RM48.9m and
RM60.1m for FY12-FY13E, representing growth of 43% and 23% respectively. Based
on our earnings projections, and after factoring in its recently acquired 32%
Kian Joo stake, we reckon the stock should be valued at RM4.95, representing a
substantial 97% capital upside to its current share price. Note that even
without the Kian Joo stake, Can-One’s existing business itself is already worth RM3.15. Our valuation
assumed a PER of just 8.0x PER on the group's core earnings for FY13E. We
believe the 8.0x PER valuation is fair for the company due to 1) its
substantial revenue and core net profit growth, 2) the synergistic business
segments of general cans and food products, which could potentially lead to
higher margins and 3) the PER valuation of 8.0 is in line with the average PER
valuation for Bursa-listed small cap stocks.
Source: Kenanga
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