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PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 27 Nov 2020, 11:04 AM

 

Chin Hin - Disappointing Quarter

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Chin Hin Group finished the financial year on a disappointing note with 4FY19 net profit of only RM2.2m (-73.8% YoY, +70.7% QoQ) reported. Cumulative FY19 net profit of RM19.1m (-16.9% YoY) is below our and consensus estimates at 67% and 70% of full-year numbers respectively. Gross profit margins fell to 8.8% (FY18: 9.3%) owing to intense competition and pricing pressures, as higher impairment charges also weighed. We cut FY20/FY21 estimates an average 20% to account for weaker near-term business prospects and higher operating costs. We still like the Group’s prospects, earnings volatility notwithstanding, 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. We retain our Outperform call but with a lower TP of RM0.68 (RM0.94 previously) on a 13x multiple to a lowered FY20 EPS).

  • The negatives. Distribution of building materials saw revenue slipping 7.2% YoY in FY19 owing the on-going softness in the construction sector. The ready mixed concrete and wire mesh divisions were similarly hampered, with revenue slipping more pronounced 33.8% and 18.4% YoY respectively.
  • The positives. Autoclaved-aerated concrete (AAC) and precast concrete segment revenue growth (+50.4% YoY) was driven mainly by the latter through a product portfolio expansion in the infrastructure sector. Stronger export growth of polymer pipes to Singapore also contributed positively. The Group’s door related businesses recorded a 76.5% YoY surge in revenue through the steel door frame business acquired end-2018 and the new wooden door business entered into early-2019.
  • Prospects. Management anticipates near-term operating conditions to be challenging in light of subdued property market and construction-related activities. Intensifying competition has already seen gross operating margins slip 0.5% YoY to 8.8% as market players marked down prices to protect/gain market share. Given the excess supply of blocks in the domestic market the group’s new AAC plant in Johor continues to run at a relatively low 30% utilization. We have cut FY20/FY21 estimates by an average 20% to account for the weaker near-term business prospects and higher operating costs. Some upside could come from Solarvest Holdings however, its 34%-owned associate, on the back of the government’s thrust in increasing the renewable energy generation mix.

Source: PublicInvest Research - 2 Mar 2020

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