Kian Joo - Can Factory New guards, same direction?

News    There has been a change in Kian Joo’s key management team with the appointment of a new CEO, a new COO and also a new secretary. Mr. Yeoh Jin Hoe, who is the CEO of Can-One, has been appointed as the CEO of Kian Joo while Mr. Chee Khay Leong, who is the COO of Can-One, has been appointed as the COO.

Comments

We are not aware of any material impact to the company’s existing operations at this juncture.

We believe the new key management team is likely to make sure that Kian Joo’s profitability remains strong as Can-One actually needs the dividends from Kian Joo to partially pay for the interest on the borrowings it took to buy the stake.

In addition, we also presume that Dato’ Anthony See, the general manager cum executive director of the company, will still remain on the board to manage the company’s daily operations as usual, although we need to confirm this with the new management.

Meanwhile, there could be potential synergies between the two companies such as in the bulk purchasing of raw materials, resource sharing or even logistics streamlining for further cost savings.

Outlook               The company has the ability to further improve its production operational efficiency to continue delivering organic growth. It could also get a potential boost from its expansion to the regional markets from its existing operations in Vietnam as well as the potential expansion of its aluminium can business to Indonesia and Vietnam.

Forecast               No changes to our forecast.

Rating   Maintain OUTPERFORM

We are maintaining our OUTPERFORM rating on Kian Joo as we believe a renewed optimism on the company (after its shareholders’ tussle in court has effectively ended) will see a rerating on the stock. Its high dividend yield of 6% will also likely cap any downside risks.

Valuation            We are maintaining our TP of RM3.00 based on 9.5x PER (which is the 1 standard deviation of the average 5-year PER) over FY13 EPS of 31.2 sen.

Risks

1) A negative change in the company’s policies and plans by the new management although we do not think this is likely.

2) A potential conflict of interest as Can-One is in the business of manufacturing condensed milk, a similar business with some of Kian Joo’s clients. However, this is mitigated by the fact that there is no direct competition as Can-One focuses more on the export markets while those clients are concentrated in the domestic market.

Source: Kenanga