This article first appeared in The Edge Financial Daily on June 28, 2019

KUALA LUMPUR: Can-One Bhd said it is positive about the group’s prospects as its newly acquired Kian Joo Can Factory Bhd is expected to reap the fruits of its past investments, starting this year.

“Our current ‘project’ is to consolidate ourselves first, to see how we can integrate and harmonise our operations, having just acquired Kian Joo Can Factory Bhd.

“We will concentrate on our packaging business [going forward] with the disposal of our dairy business. The future is bright. We expect Kian Joo’s business to pick up over the next few years,” said group chief financial officer (CFO) Khoo Kay Leong.

Khoo was speaking to reporters after Can-One’s annual general meeting here yesterday, alongside Can-One group managing director Marc Francis Yeoh, and Kian Joo group CFO Ooi Teik Huat.

According to Ooi, Kian Joo’s earnings in the past two years were dragged down by heavy costs incurred to increase capacity, but the group expects to start realising its investments from this year. Ooi estimates that a total of RM600 million was spent on capacity expansion locally and in Myanmar over the last two years.

“Capacity is one of the big determinants of growth in this industry. You simply can’t grow without capacity. It is also not a plug-and-play kind of industry and often comes with long gestation period.

“But once the revenue stream starts coming in, it will be positive for Kian Joo and Can-One, now that we are its 100%-owned subsidiary,” said Ooi, who spent 17 years at Can-One before assuming the role of group CFO at Kian Joo in 2012.

Last December, Can-One International launched a surprise mandatory general offer (MGO) for Kian Joo at an offer price of RM3.10 a share after it bought a 0.49% stake from a minority shareholder at a 51% premium to the market price. The offer was completed at end-April with Can-One holding 97.48% of Kian Joo shares. The remainder it did not own was acquired compulsorily.

Meanwhile, on the less than 48-hour validity period of the offer received by Can-One for the sale of its sweetened creamer and evaporated creamer original equipment manufacturer unit F&B Nutrition Sdn Bhd earlier this month, Khoo said it was not something unusual.

“It is not something odd or not ordinary. The board sat down, deliberated, and agreed to pursue the matter,” he said.

Ooi added that despite the substantial transaction amount of up to RM1 billion — larger than Can-One’s current market capitalisation — the board of directors’ familiarity of the unit’s business meant the only matter of concern was whether the offer price was right.

Asked if there will be special dividends following the disposal of the unit, the group said the board has to decide whether to retain the cash for future business growth or to reward the shareholders.

“Paying dividends is an easy thing to do, but then it may not work well in the long term. In the past, Can-One has been associated with high gearing, up until last year. Hopefully with this transaction (unit sale), we can change the image.

“Also, we are still relatively small as compared with other players around the world. In order for us to be big boys in the regional market, a fair amount of money has got to be thrown in for expansion,” said Ooi.

On future expansion, Can-One and the now-delisted Kian Joo intend to strengthen its foothold overseas especially in the regional market, given the rising purchasing power of consumers there, although no major expansion is expected in the near term.

“The Malaysian market is more or less saturated. Overseas market is something we need to look at. Myanmar, which Kian Joo has ventured into in the past two years, has tremendous market potential and will potentially drive the group’s growth in the coming years,” said Ooi.

Shares in Can-One finished one sen or 0.3% lower at RM3.70 yesterday, with a market capitalisation of RM710.97 million. The stock has climbed 92% since before the MGO on Kian Joo was launched.