Kian Joo Can Factory Bhd
(June 2, RM3.08)
Maintain trading buy with a target price of RM3.30: The subject title is a line normally heard in movies, of children asking their parents if the destination is any nearer after a long journey. The same can be said about the ongong takeover saga at Kian Joo which has lasted some 18 months since the proposal was first put forth to shareholders. 

We could finally be at the end though, with the decision by the Court of Appeal to throw out the case with costs awarded to Can-One Bhd et al. 

The share price has seen some recent weakness, likely due to some investor fatigue. We see it as a good opportunity though, to accumulate the shares and wait on the outcome come what may. 

Prospects remain healthy, deal or no deal. We retain our “trading buy” call with an unchanged target price of RM3.30, which translates into an inexpensive 12 times financial year 2016 ending December 2016 (FY16) earnings per share.

On Nov 26, 2013, Aspire Insight Sdn Bhd offered to acquire the assets and liabilities of Kian Joo for a total of RM1.47 billion, or RM3.30 per share. Then came an expression of interest from Toyota Tsusho Corp, saying it would be willing to pay up to RM3.74 per share, but ended up not making any move other than the initial expression. 

Then came the suit by Datuk Anthony See on May 7, 2014 compelling the courts to declare that Can One and Yeoh Jin Hoe have either direct or indirect interests in Aspire Insight, which would have excluded them from the voting process had it been successful. 

The High Court threw out the lawsuit on Nov 14, 2014, which was unsurprisingly appealed against, and which has led us to where we are today. We doubt this will be brought to the Federal Court, where the outcome would most likely be the same.

Can this deal still be blocked by the See family? Possibly, but it would take other minority shareholders voting against a “certain” cash return of RM3.30 per share. 

The Employees Provident Fund is party to the takeover exercise, hence its entire block of 43 million shares will be excluded from the process, thereby bringing the total allowable votes down to 401 million shares. 

With the See family collectively holding about 12.5% (from public records available) of those “vote-able” shares, another 12.5% (about 50m shares) are needed to scupper the deal. But with that 50 million shares having to come from about 4,305 shareholders, if they all turn up that is, chances may be slim. 

Is this worth all the trouble? Yes, especially if you’ve waited this long. While dividends have slowed to a trickle pending resolution of this saga, we continue to like the fundamental value of the company and the potential rewards, either which way. If the proposed transaction materialises, we’ll have a certain RM3.30 per share in our pockets (netting a gain of 43 sen or 15%). 

If not, we will still see that value materialising, but over the longer term as it remains imperative parent company Can-One squeeze out further operational improvements (and essentially stronger earnings, thereby increasing its intrinsic value) from Kian Joo for greater dividend income. — Public Investment Bank Bhd, June 2

This article first appeared in The Edge Financial Daily, on June 3, 2015.