IT has been a busy year for Can-One Bhd, the metal-can producer that is ultimately controlled by schoolteacher turned entrepreneur Yeoh Jin Hoe.

The company privatised aluminium and tin-can maker Kian Joo Can Factory Bhd for more than RM900 million in May this year before completing the disposal of sweetened and evaporated creamer manufacturer F&B Nutrition Sdn Bhd for between RM800 million and RM1 billion in October.

Investors may be wondering what lies ahead for Can-One — whose net tangible assets (NTA) and net profit have increased significantly in the past nine months — after these deals.

Based on its closing price of RM3.07 last Friday, Can-One is trading at a price-book value ratio (P/BV) of 0.5 times against its NTA per share of RM6.11 as at Sept 30, and at a trailing 12-month price-earnings ratio (TTM PER) of just 4.1 times.

In comparison, its closest peer, Johore Tin Bhd, is trading at a P/BV of 1.4 times and TTM PER of 9.4 times.

While market experts The Edge spoke to acknowledge that Can-One shares are undervalued, their advice could not be clearer — don’t be a hero and try to beat the value trap.

Leinves PLT chief investment officer William Ng points to the fact that though Can-One appears to be under-appreciated, investors do not seem particularly keen to jump in.

“On paper, this seems to be a value trap. Definitely, there is value in Can-One shares. You can see it but you may find it difficult to extract. And if you know that you can’t beat the trap, why walk into it? For me, I will just wait and see,” he tells The Edge.

At its closing price of RM3.07 last Friday, the counter had risen 55% year to date while the company’s market capitalisation stood at RM589.9 million.

It has not gone unnoticed that the stock has been thinly traded in the last four months and at only half its intrinsic value.

An equity analyst with a local research house warns that Can-One’s future is uncertain because of its high debt level. “As it is, Can-One’s NTA per share is already very high because Kian Joo’s asset base is huge. But what will Yeoh do to unlock Can-One’s value? Does he even intend to do so?”

Yeoh came under the spotlight this year when Can-One geared up to fund the full privatisation of Kian Joo, buying out his long-standing rival, the See family.

It is also worth noting that Can-One sold its stake in F&B Nutrition to Asia Dairy Creations Sdn Bhd, a special-purpose vehicle managed by Southern Capital Group Pte Ltd.

The company completed the compulsory acquisition of the remaining Kian Joo shares held by dissenting shareholders in June this year while the disposal of F&B Nutrition was completed in October.

Last Thursday, Can-One announced that in its third quarter ended Sept 30, 2019 (3QFY2019), net profit declined 73% year on year to RM2.9 million, although revenue was higher, thanks mainly to the consolidation of Kian Joo’s earnings. The lower profitability was attributed to higher interest expenses caused partly by interest cost arising from the Kian Joo privatisation.

Nevertheless, Can-One’s cumulative nine-month (9MFY2019) earnings more than tripled to RM126.8 million from RM33.6 million the year before. This was largely attributed to the hefty gain from its “bargain purchase” of Kian Joo shares.

In the nine-month period, Can-One’s NTA per share rose from RM4.32 on Dec 31, 2018, to RM6.11 on Sept 30, 2019.

Following the completion of the F&B Nutrition sale in October, Can-One’s NTA per share — not reflected in 3QFY2019 — is expected to increase further.

Interestingly, Can-One has said the disposal is expected to result in a net gain of RM610.8 million based on the floor price of RM800 million, and RM810.8 million based on the maximum price of RM1 billion.

Theoretically, Can-One’s NTA per share could increase by between RM3.17 and RM4.21.

But such impressive figures — higher NTA per share and net profit — within a short time have a price, which is reflected in Can-One’s debt position. Its net gearing ratio tripled from 0.51 times on Dec 31, 2018, to 1.6 times on Sept 30, 2019. With total borrowings of RM2.147 billion, the group has net debt of RM1.917 billion.

Leinves’ Ng says investors should not ignore Can-One’s high gearing level as there will be serious consequences if its debt is not managed well. “That is why Can-One sold F&B Nutrition — to pare down its debt. In other words, Can-One disposed of F&B Nutrition to fund the privatisation of Kian Joo.”

He adds that the net effect on Can-One’s earnings remains to be seen as the group is now entering a gestation period following the two deals.

The analyst concurs. “To me, we cannot just look at the NTA; we have to look at its gearing level too. Yes, we might see a further increase in NTA but it is only temporary because at the end of the day, the company still has to settle its debt,” he says.

“As the proceeds from the disposal of F&B Nutrition will be parked under cash and bank balances, the NTA will be high. But so is the debt. But if the company uses the money to repay bank borrowings, which I think it should, the NTA will not rise dramatically.”