PublicInvest Research

Author: PublicInvest   |   Latest post: Thu, 3 Dec 2020, 9:02 AM


Chin Hin Group Berhad- Realizing Gains

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The Group announced the disposal of shares in Solarvest Holdings (SHB), lowering its effective stake in the latter to 28.5% though realizing a gain of RM20.3m in the process. We are neutral on this development, though the funds raised is a welcome move in paring down its borrowings and strengthening its balance sheet in the current difficult operating climate. Business activity has slowed markedly owing to successive phases of the Movement Control Order (MCO) since end-March, albeit gradually being relaxed. FY20 will be a washout year with 1H numbers likely to be in the red, though we are optimistic of potentially mitigating effects in 2H on the roll-out of certain infrastructure projects. We are nonetheless cutting FY20 core earnings by a significant 70.4% to account for MCO-related business closures and the corresponding drop in construction and property-related activities for the remainder of this year. We cut FY21/FY22 estimates by 14.6%/2.7% to account for higher operating costs. We still like the Group’s prospects, earnings volatility notwithstanding, with 1) contributions from its AAC (new export markets) and precast concrete businesses, and 2) contributions from its 28.5%-owned Solarvest Holdings driving growth. We retain our Outperform call but with a lower TP of RM0.66 (RM0.68 previously) on a 13x multiple to a rolled-over FY21 EPS.

  • The transaction involved Chin Hin selling 20m shares in SHB at RM1.20 apiece in a direct business transaction, raising RM24m in the process and realizing a gain of RM20.3m. Proceeds from the disposal will be utilized solely to pare borrowings. No shareholder approvals are required.
  • 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 at FY19 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 ran at a relatively low 30% utilization rate pre-MCO. Some relief could come from Solarvest Holdings however, its 28.5%-owned associate, on the back of the government’s thrust in increasing the renewable energy generation mix.

Source: PublicInvest Research - 5 Jun 2020

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