Chin Well Holdings’ (Chin Well) 4QFY23 net profit fell by 81.7% YoY to RM5.0m on lower revenue and reduced profit margin. Cumulative 12MFY23 reported net profit of RM39.4m (-58.8% YoY) is within both our and consensus expectations, accounting for 99.9% and 95.5% of full year estimates, respectively. The lower profit was largely attributed to weak demand from the European market, higher manufacturing cost and lower average selling price (ASP) owing to price competition from China. Nevertheless, management anticipates inventory overstocking in Europe to ease, with re-stocking activities likely to pick up in the coming quarters. We keep our forecasts unchanged and maintain our Neutral call and PE-based target price pf RM1.17. The Group declared a second interim dividend of 0.71sen, bringing total dividend declared for FY23 to 5.5sen (12MFY22: 13.4sen).

• 4QFY23 revenue fell by 51.4% YoY to RM95.6m on weaker demand and lower revenue for both the Fasteners (-52.3% YoY) and Wire product (-47.2% YoY) divisions. Demand was affected by on-going geopolitical conflicts and weak global economic sentiment, particularly in the European market. Nevertheless, revenue improved marginally by 6.0% QoQ on the back of a nascent demand recovery for DIY products – Fasteners, from European markets (+20.7% QoQ).

• 4QFY23 earnings were down 81.7% YoY to RM5.0m mainly due to lower revenue and decline in average selling price (ASP) following the drop in global wire rod prices, and competition from China. Nevertheless, it showed improvement on a sequential basis. Fasteners division reported a profit before tax (PBT) of RM6.6m compared to a loss before tax (LBT) of RM1.5m in the immediate preceding quarter, 3QFY23. This was partly offset by LBT of RM0.4m in the Wire division.

• Outlook. Near-term outlook for the Group remains challenging, particularly in Europe as demand has been affected by on-going geopolitical conflicts, elevated inflation and interest rate hikes. We also expect the Group to continue facing margin compression with lower ASP and higher operating cost. Nevertheless, we expect re-stocking activities to pick up, with the restarting of Malaysian construction projects in coming quarters to drive demand for its products. In addition, the Group will also focus on its DIY segment and expansion of new products in the downstream market to cushion the weakening demand and margin squeeze.

Source: PublicInvest Research - 30 Aug 2023