• Business profile - Kim Hin Industries Berhad (KIMHIN) is one of the nation largest tile manufacturers to establish itself as the leading integrated manufacturer of a diverse range of ceramic products. It is engaged in the manufacture and sale of ceramic floor, homogeneous, and monoporosa tiles. Based on the FY14 annual report, it is also involved in the wholesale and retail of ceramic tiles, as well as trading of building materials. It operates in Malaysia (contributed circa 68% of total revenue), the People’s Republic of China (circa 19%), and Aus tralia (circa 13%). The company is headquartered in Kuching, Malaysia.
• Forex exposures – Based on the FY14 annual report, approximately 34% (2013: 32%) of the Group sales are denominated in foreign currencies whilst almost 17% (2013: 17%) of its costs are denominated in the foreign currencies. The foreign currencies are mainly denominated in USD, AUD and EUR.
• Positives - Going forward, the recent acquisition of Johnson Tiles Pty Ltd, an Australian company, would boost KIMHIN’s earnings as it plans to open more retail outlets throughout Australia to distribute Johnson Tiles. On the other hand, Kimhin will focus on rationalizing its manufacturing facilities in Malaysia, improving operating efficiency and outsourcing programmes. The sharp decline in the global crude oil prices is expected to lower KIMHIN’s operational cost, boosting its profit margin.
• Strong balance sheet and attractive net cash – KIMHIN has been paying dividend consistently. Average dividend yield for the past 8 years was about 2%. Besides, it has circa RM55m net cash.
• At RM2.17 per share, the stock is trading at trailing 12 months P/E of 8x. Since it has net cash per share of 32.7sen, ex-cash trailing 12 months P/E is lower at 7x. Furthermore, recent retracement presents “Buy on weakness ” opportunity as it form ed a “Flag” pattern, indicating a short-term continuation pattern that marks a minor consolidation before the previous move resumes. As such, we expect share prices to resume its uptrend moving forward. Noticeably, readings from RSI, MACD and Slow Stochastics also showed oversold sentiment and are likely to reverse their retracement soon.
• Further upside targets are at RM2.33 and RM2.47 (Upper-Bollinger band), with a long-term objective of RM2.60 (high on 24 Nov 2015).
• Immediate supports are at RM2.14 and RM2.10. Cut loss below RM2.06.

Source: Hong Leong Investment Bank Research - 18 Dec 2015