CHIN WELL HOLDINGS BERHAD

Highlights
Within expectations Chin Well's 2QFY12 results were within our expectations. Revenue of RM265.4m clocked in at 48.9% of our full year target, net profit of RM33.3m came in at 48.6% of our full year estimation. 1HFY12's PBT of RM50.5m increased by more than one fold from RM25.1m in 1HFY11. PBT margin of 19.0% was also higher than last year's 10.4%. These were attributable to higher sales in its fastener products division to Europe and other Asian countries. Its fastener division recorded a 12.5% increase in revenue, largely due to higher production capacity usage of its Vietnam subsidiary.

On a yearly basis, 2Q revenue of RM131.1m was merely 2.8% higher but PBT of RM24.7% was 57.1% higher YoY compared to RM15.7m in the corresponding period last year. On a quarter-to-quarter basis, revenue was 2.4% lower compared to RM134.3m in 1QFY12. Net profit was marginally lower at RM16.5m. The lower earnings were due to lower sales from European market during the quarter. In our previous briefing update, we have mentioned that a lower 2QFY12 result was expected, due to seasonality cycle as Europe countries were entering winter and holiday season. We should see performance to pick up in 3Q.

Fair Value of RM2.10 Chin Well is one of the eight companies that are being exempted from the anti-dumping duties imposed by EU toward fasteners manufacturers in Malaysia. Germany, being the largest economy in Europe and the largest revenue contributor of Chin Well within Europe region, is one country that we are closely monitoring as a gauge of Chin Well's prospect. In February 2012, German investor confidence surged to a 10-month high as global growth improved and Europe's debt crisis show signs of abating. On a yearly basis, we have witnessed margin boost in 1HFY12 resulted from sustainable sales. Hence, we are maintaining our forecast on Chin Well and keeping our BUY recommendation on Chin Well with a fair value of RM2.10.

Source:Jupiter Securities Research 27 February 2012