KUALA LUMPUR: Kian Joo Can Factory Bhd (KJCF), which has paid out half its earnings in dividends, could be even more generous considering its new controlling shareholder Can-One Bhd needs cash to pare down its high borrowings.
Can-One has raised borrowings to finance the acquisition of a 32.9% equity stake in KJCF costing RM241 million in cash.
The loan, which finances the share purchase, will effectively double Can-One’s existing borrowings to RM467 million, and raise net gearing to about 2.2 times, according to estimates by The Edge Financial Daily.
As at Sept 30, 2011, before the KJCF acquisition, Can-One had RM226.04 million in borrowings and RM11.84 million cash. With a shareholders’ equity of RM205.44 million, it then had a net gearing of 1.04 times.
“We believe Can-One would need additional cash inflow to pay off the loan interest. At this juncture, we reckon that Can-One will probably opt to receive dividends from KJCF to pay off its borrowings plus interest.
“As such, there is a possibility that with Can-One controlling KJCF now, the company may see a higher dividend payout in the future, benefiting minority shareholders of KJCF as well,” said Kenanga Research.
Kenanga estimates Can-One to incur interest expense of an additional RM28 million per annum on the borrowings to finance the acquisition of the KJCF stake.
The research house reckons that Can-One could increase KJCF’s payout ratio from the current 50% to 80%, which translates into 20.3 sen dividend per share (DPS) based on net profit forecast of RM112.8 million or 25.3 sen per share for FY11 ended Dec 31.
KJCF recorded a net profit of RM89.75 million or 20.21 sen per share for the nine months ended Sept 30.
With 146.1 million shares in KJCF, Can-One would receive about RM30 million in extra cash.
For FY10, KJCF declared a 55% dividend payout, amounting to 13.75 sen per share. KJCF posted a net profit of RM101.97 million or 22.96 sen per share for FY10.
Kenanga forecasts KJCF’s net profit to grow to RM132 million or 29.8 sen per share for FY12. Meanwhile, TA Research expects a net profit of RM143 million or 32.2 sen per share for FY12.
Assuming a payout ratio of 80%, KJCF could probably declare DPS of 23.8 sen to 25.7 sen. This will make KJCF an attractive dividend stock with a 10% yield based on its share price which closed at RM2.20 last Friday.
To recap, Can-One won the bid for a controlling 32.9% stake in its largest competitor KJCF in February 2009 at RM1.65 per share. But the See family, who founded KJCF, waged a legal battle to reject the share disposal.
After three years of courtroom tussles, the Federal Court ruled in favour of Can-One’s bid to purchase the stake on Jan 5.
The acquisition is considered a good bargain for Can-One as the price it paid was at more than 20% discount over the market value, and nearly 25% over its net asset per share of RM2.02.
With the large block of shares crossed via off-market last week, Can-One is now the single largest shareholder of KJCF. Can-One is expected to seek board representation at KJCF.
More generous dividend payments would probably be good news for other shareholders as well. Other substantial shareholders of KJCF are Kumpulan Wang Persaraan with 8.96%, and the Employees Provident Fund 7.94%.
Kian Joo Holdings Sdn Bhd, the investment vehicle of the See family, is left with 1.74%. The See brothers collectively own a 6.6% stake.
Apart from the steady cash flow generated from its can manufacturing business, KJCF has the option to divest its shareholding in Box-Pak (M) Bhd, a corrugate carton box manufacturer.
“If KJCF disposes of its 54.8% stake in Box-Pak at the previously rumoured price of RM3.20, Can-One could be getting about RM34.6 million as capital repayment at the level,” added Kenanga.
However, an analyst noted that at Kenanga’s rumoured price, Box-Pak would look very pricey, at 1.82 times book and a price-to-earnings ratio of 13.9 times, based on annualised earnings per share of 23 sen for FY11 ended Dec 31.
Box-Pak’s shares surged 28 sen or 11.9% to RM2.64 on a heavy volume of 1.91 million shares last Friday.
The stock is trading near its 12-month high, whose share price doubled over the past two months.
The possible dividends would come in handy for Can-One to at least cover its interest expenses.
However, Kenanga conceded that the move to raise dividends would only lift Can-One’s debt burden temporarily, and it is still uncertain how Can-One plans to pay off its huge borrowings in the long run.
This article appeared in The Edge Financial Daily, January 30, 2012.
Can-One has raised borrowings to finance the acquisition of a 32.9% equity stake in KJCF costing RM241 million in cash.
The loan, which finances the share purchase, will effectively double Can-One’s existing borrowings to RM467 million, and raise net gearing to about 2.2 times, according to estimates by The Edge Financial Daily.
As at Sept 30, 2011, before the KJCF acquisition, Can-One had RM226.04 million in borrowings and RM11.84 million cash. With a shareholders’ equity of RM205.44 million, it then had a net gearing of 1.04 times.
“We believe Can-One would need additional cash inflow to pay off the loan interest. At this juncture, we reckon that Can-One will probably opt to receive dividends from KJCF to pay off its borrowings plus interest.
“As such, there is a possibility that with Can-One controlling KJCF now, the company may see a higher dividend payout in the future, benefiting minority shareholders of KJCF as well,” said Kenanga Research.
Kenanga estimates Can-One to incur interest expense of an additional RM28 million per annum on the borrowings to finance the acquisition of the KJCF stake.
The research house reckons that Can-One could increase KJCF’s payout ratio from the current 50% to 80%, which translates into 20.3 sen dividend per share (DPS) based on net profit forecast of RM112.8 million or 25.3 sen per share for FY11 ended Dec 31.
KJCF recorded a net profit of RM89.75 million or 20.21 sen per share for the nine months ended Sept 30.
With 146.1 million shares in KJCF, Can-One would receive about RM30 million in extra cash.
For FY10, KJCF declared a 55% dividend payout, amounting to 13.75 sen per share. KJCF posted a net profit of RM101.97 million or 22.96 sen per share for FY10.
Kenanga forecasts KJCF’s net profit to grow to RM132 million or 29.8 sen per share for FY12. Meanwhile, TA Research expects a net profit of RM143 million or 32.2 sen per share for FY12.
Assuming a payout ratio of 80%, KJCF could probably declare DPS of 23.8 sen to 25.7 sen. This will make KJCF an attractive dividend stock with a 10% yield based on its share price which closed at RM2.20 last Friday.
To recap, Can-One won the bid for a controlling 32.9% stake in its largest competitor KJCF in February 2009 at RM1.65 per share. But the See family, who founded KJCF, waged a legal battle to reject the share disposal.
After three years of courtroom tussles, the Federal Court ruled in favour of Can-One’s bid to purchase the stake on Jan 5.
The acquisition is considered a good bargain for Can-One as the price it paid was at more than 20% discount over the market value, and nearly 25% over its net asset per share of RM2.02.
With the large block of shares crossed via off-market last week, Can-One is now the single largest shareholder of KJCF. Can-One is expected to seek board representation at KJCF.
More generous dividend payments would probably be good news for other shareholders as well. Other substantial shareholders of KJCF are Kumpulan Wang Persaraan with 8.96%, and the Employees Provident Fund 7.94%.
Kian Joo Holdings Sdn Bhd, the investment vehicle of the See family, is left with 1.74%. The See brothers collectively own a 6.6% stake.
Apart from the steady cash flow generated from its can manufacturing business, KJCF has the option to divest its shareholding in Box-Pak (M) Bhd, a corrugate carton box manufacturer.
“If KJCF disposes of its 54.8% stake in Box-Pak at the previously rumoured price of RM3.20, Can-One could be getting about RM34.6 million as capital repayment at the level,” added Kenanga.
However, an analyst noted that at Kenanga’s rumoured price, Box-Pak would look very pricey, at 1.82 times book and a price-to-earnings ratio of 13.9 times, based on annualised earnings per share of 23 sen for FY11 ended Dec 31.
Box-Pak’s shares surged 28 sen or 11.9% to RM2.64 on a heavy volume of 1.91 million shares last Friday.
The stock is trading near its 12-month high, whose share price doubled over the past two months.
The possible dividends would come in handy for Can-One to at least cover its interest expenses.
However, Kenanga conceded that the move to raise dividends would only lift Can-One’s debt burden temporarily, and it is still uncertain how Can-One plans to pay off its huge borrowings in the long run.
This article appeared in The Edge Financial Daily, January 30, 2012.
