THE furore on Can-One Bhd has yet to end, and not surprisingly so, considering there are now privatisation and merger possibilities apart from the company's ability to equity account Kian Joo Can Factory Bhd's earnings based on its 32.9% stake in the latter.
In response to a query by Bursa Malaysia on Can-One's major shareholders and friendly parties considering a privatisation or merger exercise with Kian Joo, the board of directors of Can-One pointed out that it has no knowledge of plans to do so.
The announcement to Bursa could simply mean that the board has not been served with takeover papers. Furthermore, it is likely that Can-One's major shareholder, Yeoh Jin Hoe has yet to inform the board of his plans.
Boost to Can-One
Nonetheless, with the 32.9% stake in Kian Joo, it is a huge boost to Can-One, considering that Kian Joo's net profit is approximately four times (x) its own net profit.
For the nine months to Sept 30, 2011, Kian Joo's net profit was RM89.75mil compared with Can-One's RM20.01mil.
In terms of market capitalisation, Kian Joo is more than three times larger than Can-One at RM923.87mil compared with Can-One's RM271.27mil.
“As it is now able to equity account Kian Joo's earnings, Can-One's valuations looks better.
“Based on the estimated earnings of both Kian Joo and Can-One for their financial year (FY) ending Dec 31, it is more compelling for the major shareholders of Can-One to take it private,” said the source.
Last week, the Federal Court ruled in favour of the liquidators of Kian Joo Holdings Sdn Bhd (KJH) to proceed with the sale of 146.13 million Kian Joo shares held by KJH to Can-One for RM241.12mil, or RM1.65 per share.
KJH is the vehicle of Kian Joo's founding See family.
To recap, Can-One won the tender to purchase the 32% stake in 2009. However, over the last two years it was in dispute with the See family, who owned substantial stakes in Kian Joo.
It had tried to stop Can-One from taking control of the company.
Certainly, with Can-One being able to recognise Kian Joo's earnings, there is incentive for the major shareholder of Can-One to take advantage of the current cheap valuations of Can-One.
“Right now, whoever wants control of Kian Joo needs to be in control of Can-One,” said the source.
An analyst added that should a privatisation be on the cards, the See family might try to fight back, but it would be an expensive exercise.
“Their stake in Kian Joo is less than 10%. Also, to call for a general offer, would be costly, not just because they don't have a controlling stake, but also because they would need to do it at higher levels than its current share price of RM2.08.
“Furthermore, Can-One would probably retaliate by buying up more shares at a much lower capital outlay,” said the analyst.
What if Kian Joo attempts to take control of Can-One? This would prove to be a more difficult route, as the controlling shareholder, along with his friendly parties, already own a big portion of Can-One.
The largest shareholder of Can-One is its managing director Yeoh, who owns a 29.63% stake, while the second largest shareholder is Koperasi Permodalan Felda Bhd with a 13.54% stake.
The analyst estimated Kian Joo's full year earnings for last year at RM125mil, implying a year-on-year earnings growth of 55.1%.
“Based on indications from management, we gather that Kian Joo should be able to achieve a net profit of RM150mil, implying a 25% net profit growth.
“This is on the back of stronger contribution from its new two-piece line (where it had spent capital expenditure of RM75mil), contribution from its Vietnam joint ventures and tighter control of operating expense,” said the analyst.
In the case of Can-One, the analyst was assuming an interest cost of 7% on the RM240mil loan raised to acquire the 32.9% stake.
This means that interest expense for the loan would be RM16mil, thus bringing its 2012 interest expense to RM22mil.
The analyst was assuming a 10% growth for Can-One's 2012 operating profit at about RM46mil.
After deducting tax and interest expense and taking into account the RM50mil (equity accounting from Kian Joo), FY12 full year net profit should be RM69mil.
At Can-One's current outstanding shares of 154 million, the estimated earnings per share for FY12 is 45 sen, which means Can One is trading at a price earnings ratio of 4.02 times.
Can-One was involved in a dispute with the See family, who holds substantial stakes in Kian Joo. Can-One had tried and succeeded in acquiring a 32.9% stake in Kian Joo for RM241.1mil or RM1.65 ashare.
This 32.9% stake belonged to Kian Joo Holdings Sdn Bhd, which was the major shareholder of Kian Joo.
Due to a feud between the See siblings, the family liquidated the holding company in the 1990s.
It was put up for tender by the liquidator, KPMG Corporate Services Sdn Bhd amid a dispute among the See brothers Kian Joo managing director See Teow Chuan and executive director Datuk Anthony See Teow Guan.
Following an open tender, the family's plans were foiled when Can-One International Sdn Bhd, a unit of Can-One, won the rights to take up a 32.9% strategic stake or 146.13 million shares in Kian Joo for RM241.12mil.