• Keep SELL and MYR0.83 TP, -22% expected return pending details on the gains amount. Kim Hin recently announced that its China subsidiary has entered an agreement with the Housing Office of the Shanghai Municipal Government to accept compensation for partial relocation of land use at the Zhujing Development Area, plus non-commercial buildings erected thereon, for a total consideration equivalent to MYR35.8m. We expect non-core gains from this deal to be booked in either 4Q19 or 1Q20.

• The details. Kim Hin announced that its 79.5%-owned subsidiary, Kim Hin Ceramic (Shanghai), has entered a non-residential property relocation compensation agreement with the Zhujing Town Relocation, Resettlement and Reconstruction Housing Office under the Shanghai Municipal Government. The agreement is for the proposed acceptance of relocation compensation for partial relocation of land use at the Zhujing Development Area, Jinshan District in Shanghai, together with non-commercial buildings erected thereon, for a total equivalent consideration of MYR35.8m. The affected land and buildings are currently used for tile manufacturing. No major impact is expected on the operations from the relocation exercise. The company will relocate its facilities in the affected buildings to its other existing buildings within the same vicinity which were not acquired under the agreement. The deal is expected to be completed by 31 Dec 2019.

• No change to forecasts. While the non-core gains are expected to be booked in either 4Q19 or 1Q20, we are keeping our core net forecasts as we still do not see signs of a full recovery in the tiles industry, especially in Malaysia. This is despite expectations for economic data to improve in the coming quarters on recent rounds of monetary easing and fiscal stimulus by global central banks and countries.

• Maintain sell with a TP of MYR0.83. While the non-core gains are expected to give a mild boost to BV, based on the stock’s current price, we do not expect this to change our SELL rating. We are keeping our P/B-based (0.28x) valuation to FY20 (BVPS: MYR2.97). Our P/B represents -2SD of the stock’s 10-year historical P/B band – justifiable pending a recovery in the industry’s dynamics.

• Key upside risks: Strengthening AUD/MYR, protection measures introduced by the Government to safeguard the industry from import competition, better Australian property market (supported by its affordable housing segment), and new demand from the US as a result of import tariffs imposed on Chinese ceramic tiles.

Source: RHB Securities Research - 29 Nov 2019