Can-One’s creamer unit sale leaves earnings void for packaging biz to fill

17 Jun 2019 / 19:15 H.

PETALING JAYA: Can-One Bhd’s disposal of its creamer unit F&B Nutrition Sdn Bhd is positive in the near term but will leave behind a huge void for the packaging business to fill, said MIDF Research.

“While the deal arrives at a time that allows for Can-One to pare down its debt and to reduce borrowing cost as a result of the privatisation of Kian Joo Can Factory Bhd (KJCF), it will take time to reap synergies from the enlarged packaging business,” it said in its report.

MIDF Research said the creamer segment has been Can-One’s earnings growth driver based on recent years and after the disposal, the enlarged packaging business will have to fill up the earnings void left by the more lucrative creamer business.

“Going forward, business risk will also be much more concentrated on the packaging business. That said, the merged entity with KJCF will also be much more asset rich and it remains to be seen how the management will be able to potentially unlock the value of its assets,” it added.

The research house expects on-year normalised earnings per share enhancement of 8-44% for Can-One from the disposal, based on a pro forma basis. The enhancement is mainly attributed to the savings in borrowing cost.

To recap, Can-One recently signed a sale and purchase agreement with Southern Capital Group Private Ltd to dispose of the entire stake F&B Nutrition for RM800 million to RM1 billion.

F&B Nutrition is an original equipment manufacturer of evaporated creamer and sweetened creamer mainly for the Southeast Asian and African markets.

The consideration is based on 10.5 times F&B Nutrition FY19 earnings before interest, tax, depreciation and amortisation (ebitda) less the FY18 net debt of RM107.4 million and net capital return of RM26 million.

“We think that the valuation of 10.5 times ebitda is considered fair as F&B Nutrition is largely an OEM but not a brand owner,” said MIDF Research.

Can-One’s gearing level is estimated to fall to between 0.55 times and 0.79 times, from 1.94 times after the disposal of the creamer unit. It is expected to make a one-off net gain of RM610.8 million to RM810.8 million from the sale.

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