Kim Hin’s results were within expectation. The group posted a lower net profit of RM7.4m (-75.5% yoy) in 2017 due to stiff price competition among domestic tile manufacturers. However, revenue increased marginally by 4.3% yoy, mainly attributable to better revenue contribution from Australia. We maintain our 2018-19E forecast and introduce 2020E EPS. However, we downgrade the stock to HOLD from a BUY given the challenging domestic tile outlook and the recent increase in share price (+9% over the past 3 months). Maintain our TP of RM1.73 based on target 2018E Price/book of 0.45x.

Within Expectations

Kim Hin’s 2017 net profit declined by 75.5% to RM7.4m, which was within expectations. Revenue increased marginally by 4.3% yoy to RM420.9m in 2017. The Australian-based sales and distribution subsidiary Outset Holdings Pty Ltd, which was acquired on 1 September 2016 has supported the revenue growth (Outset’s revenue was up 53.7% yoy). However, the growth was offset by lower revenue contributions from Malaysia (-13% yoy) and China (-5.5 yoy). Higher operating cost and stiff domestic price competition among the tiling manufacturers has eroded Kim Hin’s 2017 EBITDA margin by 5.9ppts yoy to 5.3%.

Downgrade to HOLD

We maintain our 2018-19E forecast and introduce our 2020E EPS. Kim Hin declared a lower DPS of RM0.03 in 2017, giving a net yield of 1.9%. We maintain our DPS forecasts of RM0.06 for 2018-20E although there could be downside risk should DPS not revert to historical levels of RM0.06 over 2014-2016 We downgrade the stock to a HOLD from BUY with an unchanged TP of RM1.73 (based on a target 2018E Price/book multiple of 0.45x). Key upside/downside risks are higher/lower average selling price of tiles, stronger/weaker tile sales volume and a recovery/prolonged downturn in the domestic property market.

Source: Affin Hwang Research - 28 Feb 2018