Results Review

• Stripping out a net exceptional loss amounting to RM1.3mn, CHINHIN’s 9MFY19 core profit of RM18.2mn came in below expectations, accounting for 65.9% and 56.4% of ours and street’s full-year estimates. The variance was mainly due to lower-than-expected earnings contribution from distribution of building materials & logistic services and ready-mixed concrete segments.

• YoY, 9MFY19 core profit increased by 6.2% to RM18.2mn despite a 6.3% fell in revenue to RM775.9mn. The stronger earnings performance was mainly attributed to higher earnings contribution from manufacturing of autoclaved aerated concrete (AAC) and precast product segments. The higher earnings from AAC segment was driven by increasing demand of AAC blocks from both local and Singapore markets while the increase in earnings from precast segment was due to the expansion of product portfolio.

• QoQ, 3QFY19 core profit surged 38.2% to RM7.7mn while revenue increased by 13.3% to RM283.2mn. The stronger results were mainly due to higher earnings contribution from distribution of building materials & logistic services.

• The group’s net gearing position increased slightly to 1.17x from 1.14x a quarter ago.

Impact

• Following the weaker-than-expected results, adjustments are made to reflect lower revenue contribution from both distribution of building materials & logistic services, and ready-mixed concrete segments. Consequently, earnings forecasts for FY19/FY20/FY21 are lowered by 6.4%/1.7%/1.6% respectively.

Outlook

• The group has started to strengthen its presence in regional markets such as Philippines and Australia via tendering for more foreign contracts in order to mitigate the potential further slowdown in domestic market.

• We expect the group to continue trimming the gearing level via disposal of non-core assets. The group had recently disposed RM76.5mn of noncore real estate assets to its major shareholders to raise cash in order to repay bank loans and finance working capital.

Valuation

• After revising the earnings forecasts, we reduce the target price marginally from RM0.71 to RM0.70, based on unchanged 10x CY20 EPS. Maintain Sell on CHINHIN

Source: TA Research - 26 Nov 2019