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

 

Chin Hin Group Berhad- Toughening It Out

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Chin Hin Group, as expected saw a weak start to the new financial year with 1QFY20 net profit of only RM1.4m (-67.8% YoY, -33.8% QoQ). We expect 2QFY20 to be equally dire given the Movement Control Order in force during the period, which halted property and construction-related businesses. We deem this broadly in line despite meeting only 17% of our and consensus full-year estimates, FY20 will be a washout year, earnings-wise. We gather efforts are underway in streamlining operations through the disposal of certain loss-making and less synergistic businesses, as well as non-core assets. Core businesses are slowly, but surely regaining some footing amid the challenging operating environment meanwhile. We adjust FY21/FY22 estimates higher by an average 20% predominantly to account for higher associate earnings which we had previously under-estimated, while also accounting for improvements in its precast concrete business. We still like the Group’s prospects, earnings volatility notwithstanding, with 1) increased contributions from its AAC (export) and precast concrete businesses (infrastructure related), and 2) increased contributions from its 27%-owned Solarvest Holdings driving growth. We affirm our Outperform call with a higher TP of RM0.80 (RM0.66 previously) on a 13x multiple to FY21 EPS.

  • 1QFY20 negatives. The Group’s door-related businesses saw lower revenue contribution (-7.3% YoY) due to the sluggish property market, which similarly affected the wire mesh/metal roofing manufacturing businesses (-11.1% YoY).
  • 1QFY20 positives. Autoclaved-aerated concrete (AAC) and precast concrete segment revenue growth (+6.2% 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. Oversupply in the domestic AAC market owing to subdued property-related activities weighed on overall performance however. Distribution of building materials saw improvements in sales (+5.4% YoY), as did the ready-mixed concrete business (+8.4% YoY) due to a pick-up in infrastructure-related activity.
  • Current developments. The Group has been realizing tidy gains on its investments in Solarvest Holdings, though it will continue to maintain a 25% stake to benefit from its expectedly robust earnings going forward. Business activity had slowed markedly owing to successive phases of the Movement Control Order (MCO) since end-March, though has gradually regained its footing. FY20 will be a washout year, earnings-wise, with 1H numbers likely to run into the red, though we are optimistic of potentially mitigating effects in 2H on the roll-out of infrastructure projects domestically, and improvements in the export markets.

Source: PublicInvest Research - 30 Jun 2020

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