This article first appeared in The Edge Malaysia Weekly, on November 16 - November 22, 2015.

TOYOTA Group’s trading arm Toyota Tsusho Corp (TTC) is still interested in acquiring a controlling stake in Kian Joo Can Factory Bhd and is said to have consulted with a global financial advisory firm, sources say. The financial adviser has contacted Kian Joo’s controlling shareholder, Can-One Bhd, to express TTC’s interest, say the sources.

Can-One is the single largest shareholder with a 32.9% stake. Can-One’s controlling shareholder is non-executive director Yeoh Jin Hoe, who is also the managing director of Kian Joo.

When contacted, Kian Joo declined to comment on the matter and Yeoh did not respond to The Edge’s inquiries at press time.

To recap, TTC had sent a non-binding letter of interest to Kian Joo in March last year, stating its interest in buying a 51% stake in the aluminium can maker at RM3.74 per share. The offer was higher than Aspire Insight Sdn Bhd’s RM3.30 per share.

Aspire Insight’s offer, which was made in November 2013, was to buy out Kian Joo’s asset and liabilities for RM1.47 billion, and not its equity. Aspire Insight is the special purpose vehicle owned by the Employees Provident Fund and Kian Joo executive director-cum-chief operating officer, Freddie Chee Khay Leong.

TTC was perceived to have lost interest in the bid after Kian Joo’s board claimed that it was in no position to consider the non-binding letter of interest.

Should TTC make an official bid for Kian Joo this time around, it would probably start a bidding war with Aspire Insight.

The current weak ringgit will help to strengthen TTC’s financial muscle should there be a bidding war. It would have paid some US$230 million, or RM830 million, for the controlling stake in Kian Joo, based on the then exchange rate of 3.60 per US dollar.

Assuming US$230 million is the budgeted investment, at the current exchange rate of 4.20 per US dollar, TTC can afford to raise its offer price to at least RM4 per share. Simple mathematics: the US$230 million war chest is now worth some RM966 million.

In terms of earnings, Kian Joo looks more attractive to TTC now compared with a year ago.

Kian Joo has shown continued growth in both revenue and net profit in the last three financial quarters. For the six months ended June 30, revenue grew to RM737.7 million from RM650.4 million a year ago and net profit increased to RM63.5 million from RM47.39 million a year ago.

As at June 30, Kian Joo’s net debt had declined to RM151.1 million from RM171.4 million in end-2014. Meanwhile, its retained earnings ballooned 17% to RM1.08 billion.

It posted a net profit of RM120.9 million, or 27.22 sen per share, for the financial year ended Dec 31, 2014.

Another source says with a controlling stake in Kian Joo, TTC would be able to expand its consumer products business in Southeast Asia and secure a fixed and stable client to which it can supply raw materials. This is a vertical integration for TTC.

Interestingly, TTC has a joint venture with Hokkan Holdings of Japan to make soft drink bottles in Indonesia.

TTC, which is based in Nagoya and Tokyo, is a major trading house that supplies steel products, aluminium products, steel sheets and other metal-related products. Kian Joo, a local market leader in the aluminium and tin can packaging industry, needs 55,000 to 60,000 tonnes of tinplate as well as 35,000 tonnes of aluminium sheet annually.

Shares of Can-One climbed to an all-time intraday high of RM3.97 last Friday before closing at RM3.87, giving it a market capitalisation of RM743 million. Year to date, the counter has risen 83%.

Kian Joo’s share price has gained momentum since Aug 24, rising from RM2.96 to settle at RM3.21 last Friday, giving it a market capitalisation of RM1.42 billion. Year to date, the stock price has increased 9.5%.

Should TTC come up with a higher offer price, it would be interesting to see if Aspire Insight will make a counter offer.

Can-One will be the ultimate beneficiary of a bidding war, enabling it to unlock its investment in Kian Joo at a higher value. Who doesn’t want a higher offer, even at 10%?

The long-drawn-out saga of Kian Joo may have caused investor fatigue to set in the past two months, but for the shareholders who believe in the fundamental value of the company, it could still be worth the wait.

Bear in mind that Kian Joo is not a distressed company that the shareholders want to get rid of quickly. In fact, it is in good shape, as its balance sheet has improved significantly in the last two years. It has been able to retain most of its cash and profit, as it has not declared any dividends during the period. Its net gearing has also come down to 12%, compared with 20% in December 2013.

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