Net Profit Grew By 37.3% YTD TP: RM3.70 (%27.6) Last Traded: RM2.90
Review
- Kian Joo’s 1HFY13 net profit of RM62.6mn came in line with our estimates, making up 45.7% of our full year forecast and 52.0%of streets.
- The group also announced an interim dividend of 2.5sen tax exempt and a special dividend of 3.75 sen tax exempt same as that announced in the corresponding period. Assuming a dividend payout of50%, which we think is warranted given its rising cash pile of RM173.1mn vs. RM133.7mn in FY12, we estimate a dividend yield of 5.3% in FY13 and 5.8% in FY14. Additionally, the board announced that it had aborted the proposed bonus issue and rights issue, which was first announced on 25 February 2011, as it was not deemed to be in the best interest of the group.
- Net profit grew by a staggering 37.3% YTD (YoY:+74.5%; QoQ: +5.7%) mainly attributable to its cans division which make up 74% of group’s sales. This segment reported sales growth of 14.1% YTD to RM459.1mn coupled with an improved operating income of RM71.4mn on the back of improved margin of 3.3ppt to 15.5%.
- The jump in sales was mostly due to a doubling in the aluminium production capacity in the second half of last year. Food and beverage, chemicals and paint sectors were the major drivers for this segment.
- Meanwhile, the higher operating margin was driven by improving operating efficiency coupled with the extension in plant and machinery useful life beginning this year.
- As for its cartons division, sales grew by 8.1% YTD to RM134.3mn attributed to strong demand from customers in the food and beverage and footwear segment in Vietnam. However, operating margin for the segment contracted by 2.3ppt to RM8.6mn due to the implementation of the minimum wage policy in Malaysia and Vietnam.
below: Kian Joo Result Summary (click to enlarge)
Impact
Earnings forecast maintained.
Outlook
The additional 1.8bn pcs/year of new aluminium capacity, more than double the existing capacity and the new carton capacity of 84k MT/year - almost triple the size of its existing capacity - are expected to enhance earnings by 24% this year and 9% next year.Furthermore, its superiority in the aluminium cans market, where it holds 70% market share locally - backed by strong client base such as F&N, Nestle, Carlsberg and Pfizer - adds certainty for consistent demand.
Valuation
We have upgraded our PE on Kian Joo to 11x (below +2 SD from mean) in our last report dated 30 July 2013 as we think it is justified compared to more inferior packaging companies trading at a higher PE. Pegging this new PE to FY14 EPS of 33.6sen, we maintain our TP of RM3.70. Maintain Buy.
by TA Securities
The principal activities of the Company are manufacturing and distribution of tin cans and investment holding.
