Chin Hin Group reported a 4QFY21 net profit of RM8.9m (+7.6% YoY, +>100% QoQ) as operations returned to some form of normalcy post-movement restrictions in the immediate preceding quarter. Cumulative 12MFY21 reported net profit of RM30.2m (+48.0% YoY) is below expectations at 88% of full-year estimate however as the Group undertook an impairment loss on its goodwill. FY21 numbers were also aided in part by disposal gains from the sale of Solarvest Holdings shares and warrants, though business-as-usual operations remained profitable despite a highly challenging year for construction-related activities. We keep FY22/FY23 estimates unchanged as we anticipate stronger contributions from the listed entities in its stable of companies – Solarvest Holdings (SHB), Signature Kitchen (SIB) and Chin Hin Group Property (CHGP), underpinned by the expected rollout of more construction/infrastructure-related projects in the coming year which will benefit its core business. We retain our Neutral call on the stock however given limited upside to our raised target price of RM2.12 (RM1.92 previously) as we roll-over our base valuation year to FY23 to reflect the Group’s expected multi-year growth trajectory.

• 4QFY21 positives were seen in the distribution and wire mesh divisions as revenue recovered strongly (+10.8% YoY and +57.4% YoY respectively) amid strong demand for its products post-lockdown. The Group also saw RM34.0m in revenue contribution from its property development/construction segment (via CHGP). The Group recorded another RM9.9m in disposal gains this current quarter, though this is non-core in nature and not sustainable.

• 4QFY21 negatives were mostly non-business in nature, though a potential cause for concern should operating conditions remain challenging. Impairments on receivables (RM2.5m) were taken due to inability to collect from certain customers, while impairment on goodwill (RM9.4m) was made for investments in certain underperforming subsidiaries. The fire-rated door business remained deep in the red (RM3.0m pretax loss) meanwhile due to labor shortages which affected production.

• Current developments. On its existing core business, G-Cast Concrete has made further inroads by securing another project in Singapore, and one in the Philippines. The Group’s 2nd autoclaved aerated concrete (AAC) plant continues to see utilization rate at 34%, with plans to expand further in the overseas market to fill up the excess capacity. Most promise will come from the listed entities within the Group however – Solarvest Holdings currently has an unbilled order book of over RM600m which will provide earnings visibility for the coming 2-3 financial years, while Chin Hin Group Property will benefit from its robust land-banking activities and its construction arm’s RM500m orderbook.

Source: PublicInvest Research - 1 Mar 2022