Readers will know that I do NOT like to recall recommendations, whether they did well or otherwise, will always try not to gloat over the good ones as I know you will have bad ones as well. I think overall, the strike rate is decent, may not be fantastic but decent. Which is why, its frustrating to try and blog about shares, the good ones nobody will remember, the bad ones, they will never let you forget. I get similar feedback when I do seminars and naturally I get stressed up. Sometimes I wonder if I should just do my own investing quietly and not blog, its thankless to a large extent. The best of players, even Buffett, will aim to get just 6 or 7 out of 10 calls right. Investors are like that, they will remember only the ones that didn't pan out well.
Hence I am putting up Can-One's past postings and a sample of the feedback then. I can understand the cynicism to some extent, but I am not a patient psychologist, not equipped to deal with inane stuff or questioning or worse, implying that I was ramping up stocks like Jaya Tiasa to offload. Btw, Jaya Tiasa is still my top holding.
I guess this is a venting posting, to let off some steam, so please excuse me for this. Its tough to blog for free and get missiles all the time.
UPDATED VIEW ON CAN-ONE: You say RM2.40 when it was RM1.80, they may buy but quickly get out with a small profit. You say RM2.80 if things fall into place, no one will buy. It breaches RM3.00, everybody stand at sidelines, what now ... I say RM4.000 before the year is over, and I am very very sure NO ONE reading this will buy. Investors psychology, they will always remember RM1.80, how they missed the boat.
Yes it can equity account KJ's earnings but aside from actual dividends upstream from KL, CanOne would not have access to KJ's cash flow to service its debt.
This situation does not look tenable. CanOne has to do a right issue to pare down the debt & GO KJ's shares
Will CanOne able to influence KJ's dividends payout?
May 30, 2012
Can-One Vindicated
I usually do not refer back to my previous postings even when its "right". Just look at the financials of their latest quarterly. Naturally, the contribution from Kian Joo served as a huge fillip to their bottom line. No matter how you cut it, its still 59 sen EPS per quarter. So technically, ONE TIME P.E.R.??? Of course you have too look at the liabilities jump from having to purchase, just over RM300m. Gawd, they made RM90m in one quarter, they probably can cover the entire liability in a year.
Even if you take out Kian Joo, Can-One's own operations did spectacularly well too. They posted RM12m profit, last year same quarter was RM4.5m. Are we convinced?
January 14, 2012
Sure Can-One
Well, this will be a record of sorts, 3 postings on the same stock within a week. To be fair, the markets have been very quiet and Can-One/Kian Joo saga is damn interesting. Wish we had a few talented business writers to capture the full script of behind the scenes manoeuvring, strategy, risk management and the personalities behind them ... much like The Barbarians At The Gate (RJR Nabisco), Steve Jobs in and out of Apple over a prolonged period, the disastrous Mike Eisner's emperorship during his stay at Disney, etc.
Anyway, I read The Edge just now, the writer Chong Jin Hun, had more questions on the whole thing. I will attempt to furnish a clearer picture. His last line was a request for Can-One to shed some light on it. I am not Can-One, although I write as if I am a substantial shareholder (lol):
a) "its been a week ... Can-One is not in a hurry to purchase the Kian Joo shares"
Comments: The writer is right in citing the Hong Leong Bank-EON Cap deal where the shares were crossed in one business day. Well, it is Hong Leong. In Can-One's case, the company has to wait for the liquidator i.e. KPMG to act. KPMG is not the beneficial final owner, so you can whack them with a cane, they will proceed diligently and cover their ass at every step. The executive director of KPMG apparently only flew back in over last weekend. Despite gaining the Federal Court verdict, it wanted a written legal opinion from the lawyers that they can proceed (ass covering). Now, more ass covering, they are apparently waiting for the actual original copy of the judgement by Federal Court as they deem photocopies and an actual live oral delivery of the verdict by the Federal Court judge is not deemed as sufficient for them to act (an enormous act of ass covering despite the fact that the Federal Court is the final level, no more appeals allowed). Credible sources indicate that the actual crossing will be Tuesday, Monday will be the release of the original by Federal Court. Go figure.
b) "Some quarters believe that the company may not have enough funds to buy ..."
Comment: Again pure conjecture. To be bidding for it a couple of years ago, the company had already lined up funding. They had been appealing the case over the last 2 years. Why appeal if funding is an issue? The funds are from Kuwait Finance and the crossing broker is MIMB - this from 3 different sources, reliable enough? Which bank does not want to fund this deal, gotta be kidding me.
c) ".. Can-One's delay ... may give the See family another opportunity to block the share sale again .."
Comment: What talk cock you??? What talk balls you??? (Thats funny in Cantonese). Federal Court, final... you want to appeal to the King izzit? Which part of "final" you no understand? There is the case of blocking Kian Joo's bonus and right issue, which Can-One is appealing, date pushed to March. Now, its really a none issue because once Can-One gets the 32.9% block, they will call and EGM and cancel the rights issue. The court case will dissolve then. There is no chance of Bursa acting on Kian Joo's proposal as the indication is that they will wait for all the appeals to be heard or dismissed before approving the bonus/rights. Kudos to Bursa for doing the right thing.
d) " ... gearing of one times, which is on the high side.."
Comment: Errr, 1x gearing is on the high side, I don't know which university you come from ... how to be high when the jump in borrowings is largely in buying a heavily discounted current, valuable, liquid asset??? I guess, if you get a chance to buy a liquid current asset (say shares) at a 30%-40% discount to the market, you won't take it up because you will be geared too high?? What is high gearing, if its more than backed by accretive EPS growth and more important substantive free cash flow to more than pay down interest on loan. All that with a huge buffer in terms of risk management.
e) there was speculation that Can-One will make a G.O. for Kian Joo after securing the block, as written in an article in The Edge as well
Comment: Not going to happen. As things stand you cannot be serious to mount a G.O. as there is still some 65% shares of KJ out there. You are talking about at least RM600m. A more likely development will be a merger: e.g. KJ shares swap at RM2.80 and Can-One shares swap at RM2.60 into a SPV and the SPV will take over as the listed vehicle. That way, The controlling shareholder of Can-One will still control the merged entity. Some of the peripheral assets in KJ can then be sold down to freshen up the balance sheet, or even a lucrative rights/free warrants as well.
Needless to say, the above questions to a large extent are valid, and thats what holding back the share price's uptrend. Watch for upside explosion when shares are actually crossed. Funds will pour in, uncertainty wiped out, some board members of Kian Joo will resign, ... then you have one solid near monopoly, which should be accorded a premium. But also thanks to the "delay" and so called "uncertainties", this has, in my view, presented investors who do their homework, ample opportunities, to buy on the low into Can-One.
January 9, 2012
Can-One From The Wilderness To The Top Of The Pack ... Sometimes Money Just Want To Flow To Your Side
Can-One has 154.2m shares.
Deal in April/May 2009, Can-One was supposed to buy Kian Joo Holdings Sdn Bhd's 32.9% stake in Kianjoo for RM241.12mil or RM1.65 per share.
Now Kian Joo is RM2.20, which meant that Can-One added "pure profit" on its 32.9% stake to the tune of 2.20/1.65 x 241.12 = RM106m. Divide that by the paid up of 154.2m = RM0.68 per share extra.
Can-One has been illiquid trading around RM1.00 for the longest time, thanks to the court case which was critical to its business outlook.
Let's look at Can-One's results:
INDIVIDUAL PERIOD | CUMULATIVE PERIOD | ||||
CURRENT YEAR QUARTER | PRECEDING YEAR CORRESPONDING QUARTER | CURRENT YEAR TO DATE | PRECEDING YEAR CORRESPONDING PERIOD | ||
$$'000 | $$'000 | $$'000 | $$'000 | ||
| 1 | Revenue | 160,555 | 115,244 | 463,685 | 316,880 |
| 2 | Profit/(loss) before tax | 9,794 | 6,747 | 24,934 | 13,853 |
| 3 | Profit/(loss) for the period | 8,184 | 5,196 | 21,327 | 11,339 |
| 4 | Profit/(loss) attributable to ordinary equity holders of the parent | 7,787 | 4,857 | 20,012 | 10,774 |
| 5 | Basic earnings/(loss) per share (Subunit) | 5.11 | 3.19 | 13.13 | 7.07 |
| 6 | Proposed/Declared dividend per share (Subunit) | 0.00 | 0.00 | 0.00 | 0.00 |
AS AT END OF CURRENT QUARTER | AS AT PRECEDING FINANCIAL YEAR END | ||||
| 7 | Net assets per share attributable to ordinary equity holders of the parent ($$) | 1.3480 | 1.2467 | ||
On their own, they are making around 18 sen EPS a year. Let's take the full 2011 net profit to be RM28m.
Kian Joo's annualised net profit comes to RM110m. Can-One will be able to equity account for its 32.9% stake as it can show that it has "control" of the company by virtue of having the largest single block. Can-One's share of net profits = RM36m.
Technically, Can-One's net profit in 2011 (assuming the KJ deal was affirmed back in Jan 2011) would be RM64m. But one would have to deduct the RM241m loan to buy the stake in KJ, so let's whack 7% interest = RM16m. Hence we are supposedly looking at RM64m-RM16m = RM48m net.
On 152.4m shares, the EPS would be = 31.4 sen.
Then a friend said if Can-One has already arranged for the bank loan. It appears from credible sources, the bank loan has been secured long time ago, and would not be an issue at all.
WHAT ABOUT KIAN JOO?
Some are speculating that KJ will shoot up as well as other member of the See family still in KJ may want to buyback more shares, whatever it is, it is hard to get a similar sized block of 32.9%. Even if KJ move up, it will only make Can-One's holdings look even more attractive. If the other substantial KJ shareholders try to make a G.O. on KJ, it will be at higher levels of 2.50 at least, what a good proposition for Can-One. In fact, the play is all at Can-One not KJ. The dissenting shareholders will find that buying more of Can-One and/or accumulating enough to make a G.O. on Can-One would be a lot cheaper and safer way to secure back KJ.
Will KJ try to dilute Can-One's stake? How? You cannot really do that, in the event of a bonus or warrants, Can-One will still get back the 32.9% share. Only way is to do a rights issue, and that is if Can-One cannot/will not subscribe, you think Can-One is stupid? Any rights issue will be taken up whole-heartedly by Can-One. However, they can now block any corporate exercise with their 32.9% anyway. So, what dilution?
HOW CHEAP IS CAN-ONE?
Can-One was very cheap prior to the court ruling because:
a) the KJ case was overwhelming its existing company's operations as KJ's business is at least 3-4x bigger than theirs
b) no fund was willing to buy their shares because Can-One lost the case before, and was in Federal Court on appeal only
Can-One's valuation should be KJ's valuation because effectively, Can-One can trigger a G.O. at anytime and there would be numerous bankers and private equity willing to fund the G.O. at RM2.30-2.40.
Kian Joo's PER is 8x, let's put a more cautious PER of 7x on Can-One's 31.4 sen = fair value = RM2.20
Can Can-One Takeover Kian Joo?
Sure can but very unlikely as KJ is almost 4x the size of Can-One. If they borrow funds, they will be shouldering at least RM400m-500m to go through with the exercise, dangerous as the interest alone comes to RM30m-40m a year. Can-One also cannot issue shares to take over as that would dilute its own holdings enormously owing to the size of KJ. The best possibility is a merger but even then Can-One will need to shore up their balance sheet first, then a merger would be very likely event in the next few months.
Why Can-One's share price is worth at least RM2.20-2.40, and possibly RM2.80-3.00 if they follow the path mentioned in (g):
a) they have the single largest block and can trigger a G.O. at anytime
b) KJ's fundamentals and valuations is not terribly expensive (at 8x) which would make bankers comfortable to fund any G.O.
c) the court ruling is final, no more appeals, cannot go to Privy Council in London la ...
d) institutional funds would now be a lot more willing to get into Can-One and/or Kian Joo, esp the latter which has been tormented by family squabbles for the longest time
e) the flip side is that some of the See family still holding KJ shares may decide to launch their own G.O., which will need to be at least RM2.50 for it to be reasonable ... in any case, you can wrench the 32.9% stake from Can-One for the right price and Can-One would be sitting pretty with a very solid NTA per share
f) Can-One's NTA at RM1.348 would now balloon to RM1.65 just on the premium on the KJ's stake, which would serve to be a very base
g) Can-One can and should be considering a major corporate exercise soon: free warrants, with rights @ RM1.60 (NTA) and maybe even bonus or share splits because they have the business model to call for the rights, they may want to do a 1-for-1 @ RM1.60 coupled with a 1 for 2 free warrants. With the additional RM240m cash, they can whack off the loan to purchase the 32.9% KJ and also strengthen their balance sheet to ready for a complete G.O. for the remainder
h) the final reason why Can-One will NOT stay below RM2.00 for long is with the 32.9% stake in KJ, it elevates Can-One into a stock that is in play. Anyone who wants to take control of Can-One and Kian Joo can now just do a G.O. on Can-One. We all know how difficult it was to do any corporate M&A with Kian Joo in the past owing to the family squabble. By virtue of transforming Can-One into a dai-dee in achor-dai-dee game, you have to accord a big premium on Can-One now.
NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
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