Chin Hin Group Berhad - Steady Growth

Date: 26/08/2019

Source  :  PUBLIC BANK
Stock  :  CHINHIN       Price Target  :  0.94      |      Price Call  :  BUY
        Last Price  :  0.615      |      Upside/Downside  :  +0.325 (52.85%)

Chin Hin Group reported a slightly better 2QFY19 net profit of RM5.1m (+12.4% YOY, +15.1% QoQ), though cumulative 1HFY19 of RM9.5m is still some way short of our and consensus numbers at 22.5% and 24.9% of full-year estimates respectively. We deem this to have fallen short despite the anticipation of stronger numbers in subsequent quarters on pickups in utilization in its recently expanded and/or newly-planted startups. We cut FY19 to FY21 earnings by an average 15% to factor in more conservative growth assumptions. Gross profit margins held steady at 9.6% (1QFY19: 9.6%) however, reflective of growing traction in its higher-margin businesses. We continue to like the Group’s prospects, underpinned by 1) increased contributions from its autoclaved concrete (new export markets) and precast concrete businesses, and 2) increased contributions from its investment in 45%- owned Solarvest Holdings. Our Outperform call is retained, but with a lowered target price of RM0.94 (RM1 previously) on a 12x multiple to FY20 EPS of 7.8sen.

  • Distribution of building materials saw revenue slipping 10.8% YoY in 2QFY19 due to on-going softness in the construction sector, as lesser working days due to the Hari Raya festive holidays also hampered contributions. Ready-mixed concrete (-37.1% YoY) and wire mesh production (-14.2% YoY) saw slippages owing to similar operating conditions.
  • Autoclaved-aerated concrete (AAC) and precast concrete revenue growth (+57.6% YoY, +4.1% QoQ) continued to underpin group performance, with demand for panels in the local and Singapore market remaining strong. While the second AAC plant in Kota Tinggi with an additional capacity of 600,000 m3 is still currently at 30% utilization, output will be ramped up in 2HFY19 to fulfill export demand, with specific focus on the Philippines and Singapore markets. In fact, the Group’s recent acquisition of a 30% stake in Starken Philippines Inc. (SPI) is an exciting move and marks a significant foray by the Group as SPI currently serves some of the country’s largest and most reputable developers in a fast-growing market. Please refer to our report dated 21 June 2019.

On its precast concrete business, the Group continues to supply pre-stressed and reinforced concrete beams, crosshead, cable trough and emergency walkways to infrastructure projects like the Duke Highway, Mass Rapid Transit, Light Rapid Transit, Gemas-Johor Baru (JB) Electrified Double Track Project and West Coast Expressway.

  • Associate-related contributions will be driven by stronger income from 45%- owned Solarvest with its EPCC contract values in excess of RM200m in hand. Further upside is expected to come from the government’s thrust in increasing the renewable energy generation mix. The company’s impending listing on the ACE Market will further strengthen its balance sheet and profile, enabling it to undertake jobs of more significant value in the months ahead.

Source: PublicInvest Research - 26 Aug 2019

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