An update on Chinwel’s last quarter (2Q2022) results for the period 1 October to 31 December 2021.

Our coverage of Chin Well Holdings Berhad (“Chinwel”) was initiated on 26 October 2021.

UPDATE ON LATEST QUARTER (OCT – DEC) RESULTS

On a quarter-to-quarter comparison, Chinwel showed strong improvements in Profit After Tax (“PAT”) contributed by stronger product margins. This was despite zero growth in its top line.

The stronger margins were contributed by a better product mix, reduction in distribution cost, and higher selling price in tandem with the increase in global wire rod price. Revenue was stagnant as Chinwel continues to face shortages and challenges with labour recruitment.

With the improved selling price that directly translates to better gross margins, Chinwel is taking advantage of operating leverage as their overheads are pretty much fixed.

UPDATE ON 1H2022 (JUL – DEC) RESULTS

As compared to 1H2021 results, Chinwel recorded strong growth in 1H2022 revenue by RM67m / 30%. This was contributed by the higher selling price of its Fasteners and Wire products, rebound in demand from the European market, and resumption of construction activities in Malaysia.

The improved margins contributed directly to Chinwel’s bottom line, explaining the 3-folds increase in PAT.

If Chinwel is able to repeat its results in the second half of the year, the Group will be closing a record-high profit in FY2022. The previous high was RM63.4mil in FY2016.

CORPORATE UPDATES

1. The Group expects the global industrial fastener demand to gradually return to pre-pandemic levels in the near future. Construction projects in Malaysia have progressively restarted and deliveries have been picking up in recent months.

2. The orders from the US and Europe are expected to continue increasing in the coming quarters. The increasing market price of steel wire rods will benefit the performance of the Group as they enjoy operating leverage.

3. The DIY segment in Vietnam will continue to bring a positive contribution to the Group’s performance through the increase of its distribution network in the European and US markets.

4. The Group is investing to expand its production line to manufacture new product lines of high value-added margins, such as welded fencing, gabion, and poultry mesh. This would enhance the Group’s results in the long term.

VALUATION UPDATE

At RM1.60, we opine Chinwel is priced fairly cheap and this provides a good opportunity for investors to initiate / accumulate their position. The Group’s performance is expected to flourish in the medium term, benefiting from multiple fronts, including:

• Higher selling price as commodities inflation is here to stay;
• Weakening of Ringgit against EUR & USD;
• A rebound of economic activities around the globe; and
• Return of orders from the European market.

In addition, the Group also distributes decent dividends annually. At an entry price of RM1.60, investors can expect a dividend yield of 3.4% – 6.8%.