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Author: PublicInvest   |   Latest post: Fri, 4 Dec 2020, 10:06 AM

 

Chin Hin Group Berhad - Disposes More Non-Core Assets

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Chin Hin Group announced various proposals late last week which will see it essentially dispose RM76.5m worth of assets to its major shareholders. We are positive on this development as it allows the Group to retire some borrowings and achieve cost-savings, while also providing it some cash to fund growth needs. While the transaction will see about RM12.6m in disposal gains recorded, we leave our full-year estimates unchanged pending completion of the deal which will need shareholders’ approval given that it is a related party transaction. We continue to like the Group’s long term prospects, underpinned by 1) increased contributions from its autoclaved concrete (new export markets) and precast concrete businesses, and 2) increased contributions from its investment in 34%-owned (post IPO) Solarvest Holdings. Our Outperform call is retained, with an unchanged target price of RM0.94 on a 12x multiple to FY20 EPS.

  • The assets identified are 1) 100% equity interest in Ace Logistic Sdn Bhd, a company which owns 2 semi-detached factories in Nilai and 2 single-storey terrace houses in Kepala Batas, 2) 11 units of shop offices together with 89 car parks in Kuala Lumpur, 3) 1 factory in Shah Alam, and 4) 23 units of shop offices in Alor Setar. Item (1) is being disposed for a cash consideration of RM20.8m while items (2) to (4) are being sold for a collective RM55.7m. Consequent to these transactions, 14 tenancy agreements will be entered into between the Group and the buyers for 5 units of shop offices and 89 car parks in Kuala Lumpur, as well as for 7 units of shop offices in Alor Setar.
  • Buyers. ACE Logistic will be acquired by PP Chin Hin Realty, a significant shareholder of the Group. The properties will be acquired by Midas Signature Sdn Bhd meanwhile, Midas being a wholly-owned subsidiary of Aera Property Group which in turn is a wholly-owned subsidiary of PP Chin Hin Realty.
  • Utilization of proceeds. Amounts raised by these few transactions will be utilized in the following manner, 1) repayment of bank borrowings within 3 months – RM50.0m, 2) working capital purposes within 12 months – RM23.5m, 3) estimated expenses for proposals within 3 months – RM3m.
  • Financial effects. The proposed repayments are expected to result in net cost savings of about RM180,000 (interest savings of RM2.24m and cash rebates of RM2.25m, less rental expenditure of RM2.48m and rental income loss of RM1.8m). Gearing ratio will drop to 1.11x from 1.25x as at 31 December 2018, while disposal gains from the transactions will amount to some RM12.6m.
  • Rationale for the disposals. Allowing for the Group to unlock the market values of their property assets, the transactions also minimize administrative tasks of the Group in monitoring and maintaining the said assets in addition to achieving cost synergies.

Source: PublicInvest Research - 11 Nov 2019

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