Armed with a track record over 30 years, CWH has grown to become an integrated manufacturer of fasteners and wire-rod with extensive global sales and distribution network with diversified clientele base. The group is also a potential beneficiary of China’s Blue Sky project and US-China trade tensions. Valuations are undemanding at 8.5x FY19 P/E (about 13% discount to Tongher’s trailing 9.8x P/E) and 0.91x P/B (36% discounts against Tongher’s 1.42x), supported by a resilient 7% EPS CAGR for FY18-21, healthy balance sheet (RM45m net cash or 15sen/share) with decent dividend yield (4.8-5.4% for FY19- 21). Potential downtrend reversal amid a hammer-liked candlestick pattern.

A global competitive fastener player. Chin Well Holdings (CWH) is an integrated, one-stop manufacturer of fasteners (contributed 76% to FY18 revenue) and wire rods (24% to FY18 revenue). With a total headcount of over 1200 staff, it has manufacturing facilities in Penang, Malaysia and Dong Nai, Vietnam. The combined facilities have total monthly production capacity of 144k MT of fasteners and 54k MT of wire rods. The founding Taiwan-based Tsai family collectively owns 55% in CWH

CWH manufactures and trades carbon steel screws, nuts, bolts and other fasteners. It markets to both bulk industrial and do-it-yourself (DIY) markets. Its factory in Malaysia focuses mainly on the bulk market while the Vietnam factory produces for both the bulk and DIY markets. On top of that, CWH manufactures precision galvanised wire, annealing wire, hard drawn wire, PVC wire, bent round bar and wire mesh in its plant in Penang.

Extensive global sales and distribution network with diversified clientele base. According to Zion Market Research, the global industrial fasteners market was valued at USD84.9bn in 2016, and it is anticipated to reach USD116.5bn in 2022, growing at a CAGR of 5.4 % between 2017 and 2022. The growth will be mainly boosted by the demand from the end-use sectors such as aerospace, automotive, and construction. Being an established fastener and wire rod manufacturer armed with a track record of over 30 years, CWH is able to leverage on its existing customer base through supplying a wide range of fasteners and wire products (over 3000 types) to fulfil the diverse needs from the pool of customers, which include dealers, contractors, and industrial users throughout the world. CWH now exports over 64% of its products to Europe, the US, Middle East and Australasia countries with the remaining 36% sold in Malaysia and Vietnam.

Beneficiary of China’s Blue Sky project and US-China trade tensions. This has proven to be a boon to CWH as its customers are likely to switch to CWH from China based suppliers in wake of China’s commitment to continue with its Blue Sky Project with the aim to clampdown on non-environmental friendly factory operations. Moreover, CWH is a likely beneficiary amid escalating US-China trade turmoil as its products become more competitive in comparison with the fasteners products (slapped by US tariffs) manufactured by Chinese manufacturers.

Potential downtrend trend reversal amid a hammer-liked candle. From a 52-week high of RM2.00 on 1 Oct, CWH’s share price slid 16% to a close at RM1.68 yesterday. Currently, the stock is trading at 8.5x FY19 P/E (about 13% discount to Tongher’s trailing 9.8x P/E) and 0.91x P/B (36% discounts against Tongher’s 1.42x). W e believe such valuations have provided a sufficient margin of safety and cushion further sharp share price decline, supported by steeply oversold daily indicators.

We expect CWH to build a base above RM1.66 (200d SMA), with further key supports at RM1.61 (76.4% FR) and RM1.56 (18 Sep low). A decisive close above immediate resistance at RM1.74 (50% FR) will spur prices higher to RM1.80 (38.2%) and RM1.88 (23.6% FR) before reaching to our LT objective at RM2.00. Cut loss at RM1.54.

Source: Hong Leong Investment Bank Research - 26 Oct 2018