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Author: PublicInvest   |   Latest post: Wed, 25 Nov 2020, 10:24 AM

 

Chin Hin Group Berhad - Rebuilding Momentum

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Chin Hin Group reported a 3QFY19 net profit of RM7.4m (+15.2% YOY, +44.2% QoQ), slowly but surely regaining some lost ground in recent quarters due to higher start-up costs and operational losses in its wire mesh division. Cumulative 9MFY19 net profit of RM16.9m still only makes up 51.2% of our and 56.3% of consensus full year estimates however, deeming it a miss, with anticipated pickups in plant utilization not as strong as expected. Gross profit margins inched up a notch to 9.7% (2QFY19: 9.6%), reflective of growing traction in its higher-margin businesses. That said, we cut FY19-FY21 estimates an average 11% to account for higher administrative expenses. We continue to like the Group’s prospects nonetheless, with 1) increased contributions from its AAC (new export markets) and precast concrete businesses, and 2) increased contributions from its 34%-owned (post-IPO) Solarvest Holdings driving growth. While the share price has ticked up close to our TP of RM0.94 (~13x multiple to FY20 EPS) with limited near-term upsides for now, we retain our Outperform call given scope for earnings upsides.

  • Distribution of building materials saw revenue slipping 5.9% YoY in 3QFY19 as on-going softness in the construction sector continues unabated. Similarly tough operating conditions weighed on the ready-mixed concrete (-39.7% YoY) and wire mesh (-8.0% YoY) segments which also saw slippages in revenue.
  • Autoclaved-aerated concrete (AAC) and precast concrete revenue growth (+62.0% YoY) speaks volumes of its immense contribution to the Group, with demand for panels in the local, Singapore and Philippines markets underpinning prospects. The second AAC plant in Kota Tinggi is still currently at 30% utilization, with capacity anticipated to be filled up by export demand in light of the domestic property market remaining sluggish. The Group also continues to supply pre-stressed and reinforced concrete beams, crosshead, cable trough and emergency walkways to key infrastructure projects nationwide.
  • Associate-related contributions. Further upside from Solarvest Holdings is expected to come from the government’s thrust in increasing the renewable energy generation mix. The company’s listing on the ACE Market (today) will further strengthen its balance sheet and profile, enabling it to undertake jobs of more significant value. We estimate net profits of RM16.6m and RM17.7m for FY20 and FY21 respectively (year-end Mar), translating to additional contributions of RM5.9m and RM6.5m to the Chin Hin Group.
  • Recent developments. The Group announced various proposals which will essentially see it dispose RM76.5m worth of non-core assets (factories, shop office) to its major shareholders, allowing it to retire some borrowings and achieve cost-savings, while also providing it some cash to fund growth needs. About RM12.6m in disposal gains will be generated.

Source: PublicInvest Research - 26 Nov 2019

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Labels: CHINHIN

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Chart Stock Name Last Change Volume 
CHINHIN 1.37 +0.01 (0.74%) 62,400 

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