• Maintain SELL, new TP of MYR0.64 (0.25x P/BV on FY21 BVPS of MYR2.57), total return of -12%. Our P/BV is around -2.5SD from Kim Hin Industry’s 10-year historical P/BV band – reflecting the industry’s challenging operating environment. Its financial focus in the coming quarters should still be centred on maintaining positive operating cashflow and keeping a net cash balance sheet – both are expected to be boosted by the compensation amount post the deal to partially relocate its plant in Shanghai.

• 1Q20 results below expectations. 1Q20 topline (-13% YoY to MYR72.7m – the lowest since 1Q16 at the least) fell across all reporting geographical segments due to COVID-19, which further dampened already-soft demand prior to the pandemic. Competition, which has been keen in recent years, continued to be reflected in its 1Q20 gross margin which fell to 22.4% (1Q19: 27.1%, 4Q19: 22.5%) – also one of the lowest since 1Q16. Administrative expenses stayed flat YoY at MYR18.2m, as the company is maintaining its workforce despite the challenging operating environment. Consequently, reported LATAMI fell to MYR17.9m from MYR8.9m.

• Proposed relocation for portion of land and buildings erected thereon. The relocation exercise is not completed yet, as the reconstruction of the replacement buildings and related facilities is still ongoing. Recall that the relocation deal was entered into by its 79.5%-owned subsidiary with the Shanghai local government authority, for a total consideration of MYR35.8m. Post deal, a one-off gain is expected to be booked, and this should also improve Kim Hin’s cash flow.
• We cut FY20-22F earnings by 14%, 9% and 4% to reflect the challenging demand environment, as the property market remains soft. We also expect competition in supply to intensify further, from imports. Despite this, we are still expecting Kim Hin to still record a net cash balance sheet – largely through working capital management. That said, we are not expecting dividend payments until profits return.
• Still SELL, with a lower TP of MYR0.64 as we roll forward our valuation base year to FY21. Our valuation of 0.25x P/BV is at about -2.5SD from its 10-year historical P/BV band. Its peers, White Horse and Seacera, are currently trading at P/BV of 0.25x and 0.18x of their latest book value

Source: RHB Securities Research - 30 Jun 2020