KUALA LUMPUR: Can-One Bhd, which will book a gain from the sale of its sweetened creamer and evaporated creamer manufacturing unit, says it will not be paying dividend to shareholders after the disposal. This is because the group feels the priority now should be on paring down its debts and optimising its resources to accelerate growth of its general packaging business.

Can-One shareholders gave their green light for the disposal of F&B Nutrition Sdn Bhd to Asia Dairy Creations Sdn Bhd for between RM800 million and RM1 billion at an extraordinary general meeting earlier this month. The one-off gain from the disposal will be between RM611.8 million and RM811.8 million.

Can-One has been paying out dividends consistently. The group’s dividend payout ratio between 2014 and 2018 ranged from 8.89% to 16.98%, according to Bloomberg data.

Kian Joo Can Factory Bhd group chief financial officer Ooi Teik Huat said one main reason Can-One will not be paying dividend this time is because it has incurred a “huge amount of debt” following its mandatory general offer (MGO) for Kian Joo.

Also, Kian Joo’s investment in carton and packaging plants in Myanmar is still in “deep investment cycle”, with profits only expected in the next three to five years.

“We need to look at the long-term growth of the group. We need to look after the company’s future growth rather than pay out everything as dividends.

“I think after the MGO [for Kian Joo], we incurred a huge debt in our book. The logical thing is to de-gear first and to reorganise our business unit, [by looking on] how to optimise what we have [after acquiring Kian Joo]. And it takes time to do so,” Ooi said.

Can-One’s gearing level has shot up to 1.89 times from 0.65 times previously due to the Kian Joo purchase.

Following the disposal of F&B Nutrition, its gearing ratio is expected to come down to between 0.54 and 0.74 times. Can-One plans to repay RM750 million of its debt, which is estimated to result in annual interest savings of about RM40.3 million.

The remaining amount from the disposal is expected to be received within two years from the completion date in October.

With the disposal of F&B Nutrition, Ooi said Can-One can focus on its general packaging segment, stressing that the “acquisition of Kian Joo re-emphasised its core business is general packaging.”

Asked why Kian Joo is selling off its cash cow (F&B International) now, Ooi said Kian Joo would be a “direct replacement” for F&B International. He pointed out that Kian Joo’s results have been much stronger than F&B Nutrition’s in the past.

F&B Nutrition contributed to 68.58% and 82.7% of Can-One’s top line and earnings before interest and taxes, respectively, for the financial year ended Dec 31, 2018 (FY18).

Ooi said Kian Joo’s earnings before interest, taxes, depreciation and amortisation (Ebitda) stood at RM143.1 million in FY18, RM184.6 million in FY17 and RM248.7 million in FY16. In comparison to F&B Nutrition, its Ebitda stood at RM83.3 million in FY18, RM59.9 million in FY17 and RM75.4 million in FY16.

Kian Joo, he added, has a better earnings potential given its huge investments in Myanmar starting in 2016, where the plants are yet to contribute meaningfully to the group.

To date, Kian Joo has invested US$120 million (RM501.6 million) in carton and packaging plants in Myanmar, said Ooi.

“Usually this whole investment cycle takes three to five years before it can contribute meaningfully to our results. The plants in Myanmar just commercially operated around January and February this year and we have captured some revenue. So, within three to five years it (the investment) should be able to contribute positively to the group,” he said.

The plants, he added, have received orders from beer companies to serve the local market.

“Over the long term, Kian Joo will be much more profitable than F&B Nutrition,” he added.

Kian Joo’s net profit was down 80.78% to RM17.3 million, from RM90 million in FY17, mainly due to pre-operating expenses incurred in relation to the set-up of new manufacturing plants in Myanmar and the non-recognition of deferred tax credit loss-making subsidiaries.

Kian Joo’s negative performance also dragged Can-One’s performance in FY18, with net profit falling 26.74% to RM46.58 million, from RM63.58 million in FY17, despite higher revenue of RM1.23 billion versus RM1.14 billion previously.

For the first quarter of FY19, however, Can-One’s net profit jumped by more than eight times to RM96.88 million, from RM11.43 million a year ago. Revenue was up 30.84% to RM406.22 million from RM310.48 million. The improved performance was due to gains on bargain purchase arising from the acquisition of Kian Joo.

Can One’s share price fell two sen or 0.63% to RM3.13 last Friday, giving the group a market capitalisation of RM601.44 million.