Canone- more attractive after the correction

Results Update

Canone announced its results for QE31/12/2011 yesterday. Its net profit increased by 62% q-o-q or 45% y-o-y to RM12.6 million while its turnover increased by 4% q-o-q or 27% y-o-y to RM167 million. The company attributed its improved bottom-line to changes in sales mix in the general can division, which saw its operating margin inched up from 9.0% foe QE31/12/2010 to 10.4% in QE31/12/2011. The operating margin for the other division (the food division) slipped from 5.0% to 4.5%.


Table: Canone's last 8 quarterly results



Chart 1: Canone's last 20 quarterly results

Valuation

Canone (closed at RM1.79 today) is now trading at a PE of 8.4 times (based on last 4 quarters' EPS of 21.4 sen). At this PE multiple, the stock is still undemanding. This is especially true if we were to factor in the contribution from the newly acquired stake in Kian Joo Can Factory Bhd.

Other Development

The stock corrected quite significantly over the past one month, probably due to the appeal filed by the See family (the previous major shareholders of Kian Joo) against the earlier decision on the Kian Joo case by the Federal Court. The ground of the appeal - plagiarism by the earlier Federal Court judges - seems unusual. Where does one draw the line between following a precedent & plagiarism? It would be pure madness for any judge to plagiarize after the recent brouhaha surrounding another case which was given much publicity (here). As such, I think the appeal is likely to fail.

Technical Outlook

From the intra day chart, we can see that Canone's recent correction is likely to have completed. In any event, the stock has good horizontal support at RM1.60 (see the weekly chart below).


Chart 2: Canone's 120-min chart as at Feb 29, 2012 (Source: Quickcharts)


Chart 3: Canone's weekly chart as at Feb 27, 2012 (Source: Tradesignum)

Conclusion

Based on satisfactory financial performance, attractive valuation, exciting prospect, Canone is a good stock for long-term investment.