Review

• Excluding the exceptional net foreign exchange gain amounting to RM6.9mn, CHINWEL’s FY23 core profit of RM32.5mn came in below expectations, accounting for 86.7% and 78.7% of our and consensus fullyear estimates. The variance was mainly due to lower-than-expected profit contributions from fasteners and wire divisions.

• A second interim dividend of 0.71sen/share was declared, bringing YTD dividend to 5.51sen/share. (FY22: 13.4sen/share)

• YoY, FY23 core profit dropped 65.1% to RM32.5mn as revenue was 30.6% lower at RM456.5mn. The softer earnings performance was largely attributed to lower profit contributions from fasteners and wire divisions. The PBT for the fasteners division decreased by 52.6% to RM49.3mn from RM103.9mn, mainly due to lower average selling prices as well as weaker demand, especially from Europe. On the other hand, the wire division also saw its PBT fall 86.5% to RM2.5mn from RM18.5mn due to unfavourable global market conditions.

• QoQ, the group posted a core net profit of RM0.4mn in 4QFY23 compared with a core loss of RM0.1mn, primarily owing to better performance from the fasteners division. The fasteners division returned to the black by posting a PBT of RM6.6mn thanks to gradual demand recovery from European markets. Meanwhile, the revenue jumped 6.0% to RM95.6mn.

Impact

• Maintain our FY24 and FY25 earnings forecasts. Meanwhile, we introduce the FY26 earnings forecast of RM57.3mn, representing an earnings growth of 8.6%.

Outlook

• Based on management’s guidance, the demand for fasteners has started to slowly pick up again in European markets. Meanwhile, the sales orders from the US market remain solid due to local infrastructure spending as well as trade diversion.

Valuation

• No change to our target price of RM1.54, based on unchanged 9x CY24 EPS. Maintain a Hold call on the stock.

Source: TA Research - 30 Aug 2023