Chin Hin Group (CHG) announced the acquisition of yet another listed entity to add to its stable of companies which already includes Solarvest Holdings (SHB), Signature Kitchen (SIB) and Chin Hin Group Property (CHGP). This time round, a 24.68% equity interest in Ajiya, a company involved in related building materials, was acquired for RM104.4m (or RM1.45 per share). The acquisition is priced at ~25x trailing earnings multiple (~16x ex-cash), value-accretive from the standpoint of CHG’s relatively higher earnings multiple. Prospects of the property industry are encouraging with most developers reporting better-than-expected sales numbers to date. Pending more clarity from management on its longer-term and more comprehensive plans for value extraction however, we maintain our Neutral call and RM2.12 target price on CHG based on its FY23 earnings.

• The transaction will see CHG acquire 60.57m shares (20.76% stake) from Dato’ Chan Wah Kiang (a director and major shareholder of Ajiya) and 11.43m shares (3.92% stake) from Avia Kapital Sdn Bhd for a collective RM104.4m (or RM1.45 per share). This is at a premium to its 5-day volume-weighted average of RM1.18 per share and net tangible asset per share value of RM1.25 (as at 30 Nov, 2021). CHG will be the single largest shareholder of Ajiya post-completion of the deal.

• Ajiya is listed on the Main Market of Bursa Securities and is principally involved in the manufacture and supply of building materials – glass products, metal roofing, metal door and window frames. A quick glance at its most recent financials (as at 30 Nov, 2021) shows a company with RM146.7m in cash with zero borrowings.

• Rationale for the transaction is understandable, as it allows CHG to expand on its product offering which currently already includes distribution of building materials, manufacture and distribution of ready-mixed concrete, manufacture and trading of autoclaved aerated concrete, precast concrete products, wire mesh, fire-rated door, wooden door and modular building solutions. CHG has also cited Ajiya’s existing presence in Thailand which it could leverage on to add to its own overseas presence in the Philippines and Singapore. Prospects of the property industry remain encouraging with most developers reporting better than-expected sales numbers to-date. Pending more clarity from management on its longer-term and more comprehensive plans for value extraction, we maintain our call and valuation on CHG. Funding this acquisition should not be an issue considering its ability to monetize some of its recent acquisitions which are in-the-money.

Source: PublicInvest Research - 21 Mar 2022