Chin Hin Group (CHG) announced a 1-for-1 bonus issue which will entail the issuance of 885.1m new shares at a date to be determined later. This comes after an earlier deferment announced in November last year. We are neutral on this development as the exercise will see corresponding adjustments to the share base and price, though not affecting the intrinsic value of the Group. CHG has been active on the corporate front in recent months, one being the proposed acquisition of a 24.68% equity interest in Main Market-listed Ajiya Berhad and the most recent being the partial disposal of its stake in Solarvest Holdings Berhad (SHB). Our earnings estimates are kept unchanged at this juncture pending completion of the earnings-accretive Ajiya acquisition, though this will be partly affected by the potential loss in equity-accounted earnings of SHB. We retain our Neutral call on the Group though we lift our target price to RM3.01 (RM2.12 previously) as we switch our valuation methodology to sum-of-parts based to reflect the value of its investments in Signature International (SIB) and Chin Hin Group Property (CHGP) as well. We remain optimistic over the Group’s prospects over the medium to longer term on the expected rollout of construction/infrastructure-related projects in the coming year, in addition to the contributions from SHB, SIB and CHGP though the positives appear to already be priced-in.

• Bonus issue. The exercise will see the issuance of 885.1m new shares, and has been proposed as a means to reward shareholders for their continuous support and to adjust the market price of CHG to a more affordable level to appeal to a wider group of shareholders and investors, amongst others. We are neutral on this development as the exercise will see corresponding adjustments to the share base and price though not affect the intrinsic value of the Group.

• Recent developments. The Group also recently announced the disposal of a total of 25.95m shares (3.88% stake) in SHB between March 3 and April 18, booking in a disposal gain of RM18.7m in the process (original investment cost: RM4.9m). Proceeds from the disposal will be channeled into the Group’s future expansion. Post-disposal, the Group’s stake in SHB is currently at 19.3%.

• Other developments. Signature International has entered into a strategic collaboration with Scanwolf Corporation to penetrate both the local project and retail markets, with expected value creation in the B2P, B2B and B2C segments. Solarvest Holdings, meanwhile, had recently been appointed as the engineering, procurement, construction and commissioning (EPCC) solutions provider for a rooftop solar PV project involving 12 stores and 1 fresh distribution centre of the Lotus’s hypermarket chain.

Source: PublicInvest Research - 25 Apr 2022