Finding Value In Packaging Industry

On September 15, Maypak had announced that it received a takeover offer from Japan-based Taisei Lamick after a sale and purchase agreement entered between both parties in July to purchase a stake of 23.1 million shares became unconditional – read more. Would we see more of take-over exercises of similar packaging companies in Malaysia, given the weak Ringgit?The largest market cap of packaging industry is Kian Joo Can Factory Berhad. It is an associate company of another listed packaging company, Can One as well as it owns another listed packaging company, Box Pak as subsidiary. The list of other listed packaging companies are as follows:

List of Packaging.png

For the past few years, the share performance of respective packaging companies has been rather mixed:

Packaging_Price_All.png

Using a simple regression between total market cap of the listed packaging companies on Bursa Malaysia (including KJC) and the FBMKLCI index, it appears that the packaging companies are doing relatively better than the forecast market cap (as regressed against the FBMKLCI index). Is this a potential sign of possible overvaluation for packaging companies?Packaging vs KLCI.png

If we perform a regression of KJC against the market cap of packaging companies (excl. KJC):

  • A relatively weak statistical result, with R-squared value of approximately 0.14

KJC vs Packaging Market Cap.png

  • Nevertheless, based on the above statistical relationship, it appears that KJC has fallen relatively below its forecasted market cap of RM1,421 mil (or RM3.19 per share) with a confidence interval of between RM1,218 mil (RM2.74 per share) and RM1,624 (RM3.65 per share)
  • This could be potentially due to the on-going off-loading of equity positions by one of its substantial shareholders, EPF.
  • kjc-vs-packaging-market-cap2kjc-vs-packaging-market-cap3

 

Taking a separate view, we regress the market cap of KJC against the market cap of Can One and Box Pak:

KJC vs CANBPK2.png

KJC vs CANBPK.png

In this analysis, there was no  undervaluation of KJC, with predicted market cap of KJC to be approximately RM1,223 mil (or RM2.75 per share).

The indicative valuation range of KJC shall be determined via a detailed valuation process. The above simple desktop analysis purports to show there could be potential support / resistance points such as RM2.74. RM2.75, RM3.19 and RM3.65 RM for KJC (from a statistical viewpoint).

 

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Author: Ken Utau

Markets Observer + Food Lover

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