Chin Hin Group (CHG) reported an encouraging headline net profit of RM16.4m (+>100% YoY, -38.5% QoQ), for 3QFY22, though partly operational-driven and partly one-off gain-supported. The results are deemed broadly in line with our expectations at 80% of full-year numbers. CHG continues to see improvements in its operations, with most of its core businesses benefitting from full re-opening of all economic sectors. We keep earnings estimates unchanged, on expectations of steadier growth momentum (operationally) in the coming quarters. Our sum-of-parts derived target price is raised to RM2.37 (RM1.90 previously) as we make changes to the Group’s increased shareholding in CHGP, while also accounting for SIB’s recent acquisitions. We retain our Neutral call on CHG, and suggest investors continue to hold onto current investments even as the share price appears to remain richly-valued. Scope for earnings upsides may continue to come from its 3 listed entities – Chin Hin Group Property (CHGP), Ajiya and Signature International (SIB).

• 3QFY22 positives. Most notable is the strong comeback in its AAC/precast concrete business, reflected by the +48.2% YoY and +17.4% QoQ revenue growth due to a surge in demand for IBS products, particularly from Singapore. Utilization rate at its second plant in Johor is now at 58% (2QFY22: 40%). The ready-mixed concrete business also recorded robust revenue growth as the division secured various projects during the period.

• 3QFY22 negative, if any, is the rising interest cost as the Group drew down on various facilities to fund its recent acquisitions. We see this being less of a factor in the coming quarters however as the acquired companies are poised for strong earnings growth (and cash flow generation) on account of their respective fundamental merits (partly highlighted below). Operations-wise, all divisions appear to be recovering gradually toward pre-pandemic levels.

• Recent developments. Scope for earnings upside remains strongest in CHGP, with properties carrying gross development values (GDV) of RM2.5bn expected to be launched over the next 2 years, and just as much (as we understand) still undeveloped. 65%-owned construction outfit Kayangan Kemas Group also has an outstanding orderbook of RM1.1bn. SIB’s recent acquisitions of Singapore based Corten Interior Solutions Pte Ltd and Aereal Interior Solutions Pte Ltd for RM160.5m, both in the similar business space as SIB but with a regional exposure, comes with an unbilled orderbook of SGD200m (~RM620m). This is in addition to SIB’s own of ~RM720m. Ajiya’s ~RM130m in cash (and equivalents) remains a handy sum which it could mobilize towards merger/acquisition activities to augment growth going forward.

Source: PublicInvest Research - 29 Nov 2022