Kian Joo Can Factory Bhd
(Nov 17, RM2.95)
Upgrade to trading “buy” with an unchanged target price (TP) of RM3.30: The Kuala Lumpur High Court has struck out Datuk Anthony See’s suit against Kian Joo (KJCF), Can-One Bhd and Box-Pak (Malaysia) Bhd for various issues, but essentially clears the way for Aspire Insight Sdn Bhd to proceed with its planned takeover of KJCF’s assets and liabilities for about RM3.30 per share.

With the anniversary of the takeover announcement coming up next week, investor fatigue has clearly set in with the share price having slumped to RM2.87 currently. As we had mentioned some time back, a completion of the takeover deal will see an almost definite 10+% gain. A falling-through of the deal will possibly see an approximately 10% gain given our view that the intrinsic value of the company being worth more than the RM3.30 on offer, albeit taking a slightly longer time to materialise as the company’s fundamental values and strengths are realised. Either which way, it’s a “gain-gain” situation.

With the road seemingly cleared and the tussle now proceeding to the extraordinary general meeting which will see the See family (that was incidentally been accumulating shares in the open market over the last one year) and its related/friendly parties trying to thwart this proposed takeover if sufficient shareholding clout can be mustered. We are nevertheless upgrading our call to a “trading buy” as we see short-term potential gains. Our TP remains unchanged at RM3.30. While we can’t discount more delaying tactics by members of the See family (further lawsuits and/or injunctions), we see the risk-reward ratios skewed to the latter.

Since the last result note, investors have been waiting with bated breath on this particular decision which was seen to have been the biggest impediment to the deal if Can-One had been disallowed to vote. With that path now lesser in question, we should expect to see the company now proceeding with the dispatch of the draft circular to shareholders, which KJCF had earlier got approval to extend to March 23, 2015 to fulfil all conditions precedent to the business sale agreement.

As indicated earlier, if the proposed transaction materialises, you’ll have a certain RM3.30 per share in your pocket (netting a gain of 43 sen or about 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 KJCF for greater dividend income. — PublicInvest Research, Nov 17

This article first appeared in The Edge Financial Daily, on November 18, 2014.