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Thursday, May 26, 2016

Canone: Weaker Prices, Better Value

Results Update

In QE31/3/2016, Canone's net profit dropped 21% q-o-q or 27% y-o-y to RM11 million while revenue was mix- dropped by 13% q-o-q but rose 7% y-o-y to RM205 million. PBT dropped 16% y-o-y due to lower share of profit from associate, Kianjoo which had more than offset the increased PBT from the Food Products division which was due to higher sales, favourable product mix and favourable dairy commodity prices.


Table 1: Canone's last 8 quarterly results


Table 2: Canone's segmental performance for QE31/3/2016 & QE31/3/2015
 

Chart 1: Canone's last 37 quarterly P&L results

Financial Position

Canone's financial position is mixed. Its liquidity position is healthy with current ratio at 1.3X. Its leverage position is a concern, with total liability to equity at 1.0X and total debts to equity of 0.8X. Its proposed disposal of a 30% stake in F&B Nutrition Sdn Bhd to KWAP for RM280 million could help. Alternatively, the company could raise funds through a Rights Issue which may be a bit hard to swallow in this difficult time.

Valuation

Canone (closed at RM3.63 yesterday) is now trading at a PER of 8.6X (based on last 4 quarters' EPS of 42 sen). At this PER, Canone is deemed fairly attractive.

Technical Outlook

Canone had a short-lived rally after it announced the proposed sale of a stake in F&B Nutrition Sdn Bhd. Since then, the share price has dropped back sharply. It may find support at the current price from the horizontal line at RM3.60-3.70. As long as the share price remains above RM2.80-3.00, Canone is likely to be in an uptrend.


Chart 2: Canone's monthly chart as at May 25, 2016 (Source: ShareInvestor.com)
 
Conclusion

Based on satisfactory financial performance, attractive valuation & potential windfall from a possible sale of a 30%-stake in F&B Nutrition, Canone could be a good stock for long-term investment.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Canone.

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