Chin Well Holdings’ (Chin Well) 4QFY22 net profit jumped over four-fold YoY to RM27.6m on higher revenue and better profit margin following the increase of its average selling price. Full-year FY22 results meet our and beat consensus expectations, accounting for 96% and 112% of estimates respectively. We remain positive on the Group’s outlook. While demand from export markets may be somewhat dampened by ongoing geopolitical tensions and increase in global interest rates, near term growth is likely to be underpinned by the re-starting of major construction projects in Malaysia next year. We make no change to our forecasts and retain our Outperform call with an unchanged target price of RM2.00 based a 7.0x P/E multiple to its FY23E EPS. The Group declared a single tier second interim dividend of 8sen, bringing year-to-date payout to 13.4sen.

• 4QFY22 revenue improved by 50% YoY to RM196.9m, driven by higher revenue of RM162.1m (+65% YoY, +25.6% QoQ) from the Fasteners products division. Higher exports to Europe and America were also seen owing to a rebound in demand from both markets, consequently becoming main contributors to the higher revenue in this quarter. Wire division posted revenue of RM34.8m (+9% YoY, -9% QoQ) this quarter, lower compared to the immediate preceding quarter due to slow down in local demand as some infrastructure projects did not commence as expected.

• 4QFY22 net profit jumped over four-fold YoY. Chin Well reported a net profit of RM27.6m, largely due to higher revenue and better profit margin enjoyed by both the Fasteners and Wire divisions following the increase of wire rod price which led to higher average selling prices. In addition, there was a reversal of impairment in receivable for RM0.65m this quarter though it was offset by a write-off of deposit amounting to RM1.1m, paid for purchase of raw material to a supplier who defaulted.

• Outlook. We remain positive on Chin Well’s long-term prospects given the resilient demand for its products. Moving forward, we expect Chin Well to focus on products in the downstream market for better growth and profit margins. In addition, the Group remains committed to continue investing and transforming its production processes with more automation to iron out long term solutions on workforce-related challenges.

Source: PublicInvest Research - 30 Aug 2022