Results Review

• Excluding a net exceptional gain of RM4.1mn, CHINWEL’s FY19 core profit of RM53.5mn came in below our expectation, accounting for 90.2% of our full-year estimate. The variance was mainly due to higher-thanexpected raw materials cost and the start-up cost incurred for the new production line in wire division.

• An interim dividend of 3.35sen/share was declared, bringing YTD dividend to 7.85sen/share. (FY18: 8.0sen/share)

• YoY, FY19 core profit fell by 3.8% to RM53.5mn despite revenue grew by 15.1% to RM680.7mn. The weaker earnings was mainly due to higherthan-expected raw materials cost and start-up cost incurred for the new production line in wire division. Meanwhile, the revenue growth was mainly due to higher revenue contribution from both fastener and wire products divisions.

• QoQ, 4QFY19 core profit was 45.1% lower at RM6.5mn while revenue dropped by 3.9% to RM166.2mn. The drop in earnings was mainly due to lower revenue and start-up cost incurred for the new production line in wire division.

Impact

• Following the weaker-than-expected results, adjustments are made to reflect higher raw materials cost. Consequently, earnings forecasts for FY20 and FY21 were cut by 9.8% and 6.8% respectively.

• We also introduce FY22 earnings forecast of RM67.9mn, representing an earnings growth of 8.4%.

Outlook

• The escalating trade war between US and China will continue to present a great opportunity for the group to expand its market share in US.

Valuation

• Subsequent to the earnings downgrade, we lower the target price from RM2.20 to RM2.06, based on unchanged 10x CY20 EPS. Maintain Buy call on the stock.

Source: TA Research - 29 Aug 2019