Can-One to streamline operations

Higher efficiency: A Kian Joo production line. Analysts have generally reacted positively to Can-One’s plans to streamline its operations as it will further increase operational efficiency going forward.

A year after taking control of Kian Joo Can Factory Bhd, Can-One Bhd is putting plans in place to streamline its operations, which could possibly involve unlocking value from the acquisition of the former.

Earlier this week, the metal-can producer announced its intention to relocate some of its operations in Klang Valley and consolidate them in one location to improve future operating efficiency.

The group planned to acquire two freehold vacant land measuring 67.92 acres in Kapar, Klang from Klanggroup Holdings Sdn Bhd’s subsidiary Golden Valley Industries Sdn Bhd for RM103.55mil cash.

Can-One intends to use the land as a new manufacturing hub and warehousing facility for Can-One group of companies.

Can-One has yet to reply to queries from StarBizweek.

Analysts have generally reacted positively to Can-One’s plans to streamline its operations as it will further increase operational efficiency going forward.

They point out that Can-One has existing manufacturing facilities in Telok Panglima Garang in Selangor, making it a strategic move to enhance efficiency.

However, they do not expect the new manufacturing hub and warehousing facility hub to be operational for at least 12-18 months.

Analysts explain that Can-One has quite a sizeable operation in Batu Caves via Kian Joo and streamlining operations to Klang will take a bit of time. However, it is not known which factories will be relocated at the moment.

One analyst says the group could be disposing or redeveloping the facilities once vacated following its relocation. In the case of Batu Caves, he says the industrial area is developed, has access to the MRR2 highway as well the availability of industrial workers in the vicinity. As at Dec 31,2019, the group has factories in the industrial area of Batu Caves, Selangor with a total area of 35,771 sq metres.

The first factory with a size of 16,923 sq m has a net book value of RM59.86mil. Its second factory, a leasehold land with 18,848 sq m has a net book value of RM53.25mil.

The group also has factories in Shah Alam and Damansara in Selangor.

According to Brickz, a property portal, neighbouring lands in batu caves that was transacted in April 2019, a leasehold detached factory with a land area of 21,712 sqft and built up of 10,223 sq ft was transacted RM9.85mil. In another transaction, a nearby leasehold detached factory with a land area of 10,549 sq ft was sold for RM5.5mil.

Can-One says the market value of the two plots of freehold land in Klang was based on the comparison method which entails comparing the land with other similar lands that were either transacted recently or listed for sale within the same location or other comparable localities.

The purchase price for the land is agreed between the parties at a rate of RM35.00 per sq ft. The land acquisitions are slated to be completed in a year’s time. The acquisition will be funded via bank bank borrowing, indicatively in the proportion of 80%, while the balance will be from internally-generated funds.

As the acquisition will be funded through bank borrowings, the gearing ratio of Can-One will increase.

Can-One says its net debt-to-equity is expected to increase as a result of the acquisition. Its net debt-to-equity ratio will increase to 67% from 61% as at Dec 31,2019.

As at Dec 31, its net gearing ratio was 0.61 times against 0.52 times in 2018. The increase in net gearing ratio was mainly attributable to the acquisition of Kian Joo.

The past year has been a busy period for Can-One. The group gained full control of Kian Joo Can after a lengthy takeover process.

In June 2019, Can-One decided to sell its sweetened creamer and evaporated creamer manufacturing unit to Asia Dairy Creations Sdn Bhd for between RM800mil to RM1bil.

In the first quarter ended March 31,2020, Can-One posted a net loss of RM15.41mil against a net profit of RM95.39mil in the same period a year ago.

It posted a pretax loss of RM14.6mil from a pre-tax profit of RM239.85mil previously. The comparative quarter gain was mainly due to gain arising from the acquisition of Kian Joo amounting to RM252.6mil.

Revenue, however, was higher at RM645.06mil from RM265.01mil previously, mainly due to consolidation of a full quarter revenue from Kian Joo group.

The group is in the process of assessing the operational and financial impact of the Covid-19 pandemic since ongoing developments remain uncertain and cannot be reasonably predicted.

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