Kim Hin posted a higher core net loss of RM26.4m on the back of lower revenue (-8% yoy) and higher per-unit production costs in 9M19. Revenue was lower across all of its geographical segments in which the group operates. Though its sequential losses narrowed by 65% qoq, we believe its earnings outlook remains weak. This is mainly due to the prolonged weak domestic property market, which is plagued by higher inventories and affordability issues. Given the low stock liquidity, we cease coverage on Kim Hin. Our last recommendation is HOLD with a target price (TP) of RM1.06 based on 0.35x Price/book.

Losses Widened in 9M19

Kim Hin’s 9M19 core net loss widened by 63% yoy to RM26.4m, compared to our previous and consensus full-year 2019E core net loss forecasts of RM32.9m and RM24.5m respectively. Revenue was lower by 8% yoy due to lower revenue across all its geographical segments in which the group operates – Malaysia (-5% yoy), Australia (-8% yoy), China (-17% yoy) and Vietnam (-16% yoy). The group recorded losses before interest, tax and depreciation (LBITDA) of RM5.5m in 9M19 (vs. EBITDA of RM10.4m in 9M18) due to higher per-unit production costs and higher administration costs.

Operating Environment Remains Challenging

Sequentially, Kim Hin’s 3Q19 losses declined 65% qoq to RM4.1m on the back of improved revenue (+3.2% qoq) and lower operating costs (-4.5% qoq). Kim Hin is benefiting from the trade diversion resulting from the US-China trade dispute as tile traders and distributors in the US look outside China to source tile supplies. That said, we believe the outlook for the stock remains challenging given weak tile demand due to the prolonged weak domestic property market and expected global economic slowdown.

Maintain SELL With An Unchanged TP of RM1.06

We cease coverage on Kim Hin mainly due to low liquidity and the challenging operating environment. Our last call on the stock is HOLD with a 12-month TP of RM1.06 based on 2020E Price/book of 0.35x. Key upside/downside risks are higher/lower tile selling prices, stronger/weaker tile sales volumes and a faster-/slower-than-expected domestic property market recovery.

Source: Affin Hwang Research - 25 Nov 2019