PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 27 Nov 2020, 10:57 AM


Chin Hin Group - Lifted By Disposal Gains

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Chin Hin Group reported a net profit of RM7.5m (+46.3% YoY, +423.4% QoQ), though it included RM27.8m in disposal gains. Excluding this one-off item, 2QFY20 core net loss of RM20.3m is as expected, with all business divisions sinking into red as a result of plant shutdowns and reduced activity. Though a letdown somewhat, we continue to deem this broadly in line as the early parts of 2HFY20 are already appearing to be operationally stronger. FY20 is still be a washout year nonetheless. While we continue to like the Group’s prospects, with 1) increased contributions from its AAC (export) and precast concrete businesses (infrastructure-related), and 2) increased contributions from its associate, Solarvest Holdings, driving growth, we lower our call to Neutral given the recent run-up in its share price which has fairly valued near-term developments. Our TP is lifted to RM0.93 (15x FY21 EPS) however, the higher multiple in line with expansion in market multiples.

  • 2QFY20 negatives were aplenty, with all business divisions in the red due to on-going fixed overheads (labour, rental, depreciation) in the midst of its plant shutdowns. The Group’s manufacturing concerns saw ~60% QoQ contractions in revenue, while its distribution arm saw a ~48% reduction in business activity. Export sales of autoclaved aerated concrete (AAC) to Philippines and Singapore were suspended during the period, weighing on the still-low utilization of its new plant in Johor and sinking it deeper into the red. The Group also impaired trade receivables amounting to RM4.6m for certain ready-mixed concrete and distribution customers, a slightly disconcerting occurrence in light of the challenging operating environment.
  • 2QFY20 positives. Notable development for the quarter is the RM27.8m disposal gain through the selling of 25m Solarvest Holdings shares at RM1.25 apiece.
  • Current developments. Management remains focused on scaling down its unprofitable operations given the change in business dynamics wrecked by the prolonged property market sluggishness and Covid-19 pandemic. Business activity that had slowed markedly owing to successive phases of the Movement Control Order (MCO) since end-March has gradually regained some footing, with export sales to Philippines having already resumed since July and construction activity in Singapore also having resumed, albeit in a controlled manner. The potential roll-out of infrastructure projects domestically, and further improvement in the export markets will benefit the Group in FY21 onwards, prospects of which we are positive over. The government’s on-going push toward increasing the renewable energy generation mix also bodes well for its 27%-owned Solarvest Holdings.

Source: PublicInvest Research - 26 Aug 2020

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