Summary

• Chin Well Holdings Bhd’s long-term prospects remains cautious owing to the weaker demand from European countries, which has been traditionally contributing approximately 30-40% of total revenue over the years. Although the group is benefitting from the trade diversion which saw higher orders from US, the move would not be able to cover the shortfall from the European countries overtime.

• Meanwhile, we remain cautious in view of the on-going domestic political tussling which may see the widely anticipated General Election taking place sometime end- 2021 or in 2022. This may continue dampen local demand., while the sluggish property development market is expected to see new launches being held back.

• Moving forward, the higher steel bar and wire rod prices may benefit Chin Well, but local demand is expected to be soft until end-2021, when herd immunity against Covid-19 is targeted to achieve. For the time being, we expect hiccups in production amid the on-going implementation of Full Movement Control Order (FMCO) which allows only 60% of workforce.

• As such, we are ceasing coverage on Chin Well Holdings Bhd due to reallocation of internal resources and the lack of retail and institutional interest. We expect trading activities to also taper in tandem with the commodities price which appears to have peaked as the Chinese government has step in to tame the surging prices by releasing industrial metals from its national reserves this month as it is difficult for manufacturers to transfer these costs to the end-users.

• Our last recommendation on Chin Well was HOLD with a fair value at RM1.29. The fair value is derived from ascribing a target PER of 11.0x to its FY22f EPS of 11.7 sen.

Source: Mplus Research - 24 Jun 2021