Review

• Stripping off a net exceptional loss of RM1.6mn, CHINWEL’s 1HFY24 core earnings of RM4.5mn came in below both ours and the street’s expectations, accounting for only 11.5% and 13.8% of full-year estimates, respectively. The negative deviation was mainly due to lower-thanexpected profit contributions from fasteners and wire divisions.

• YoY, 1HFY24 core net profit plunged 86.1% to RM4.5mn as revenue was 38.2% lower at RM167.4mn. The weaker earnings performance can be mainly attributed to two factors: (i) subdued demand in European regions and a decline in the average selling price (ASP), and (ii) reduced sales volume stemming from a slowdown in export activities and prevailing market uncertainties. As a result, the PBT for the fasteners division and wire divisions saw substantial reductions of 92.8% and 81.5% to RM3.2mn and RM0.2mn, respectively.

• QoQ, 2QFY24 core profit plummeted 86.2% to RM0.5mn, chiefly attributed to lower selling prices amidst an intensely competitive price landscape.

Impact

• Following the weaker-than-expected results, we cut our FY24/25/26F earnings forecasts by 61.1%/42.1%/22.2%, respectively, after adjusting our ASP assumptions lower for certain fasteners and lower sales volume for the wire products.

Outlook

• We expect the group’s outlook in the upcoming quarters to remain uncertain. The outbreak of the Israel-Hamas war, the ongoing UkraineRussia conflict, escalating tensions in US-China relations, and the looming possibility of a recession in major markets have collectively adversely impacted global economic sentiment. This, in turn, has dampened the global demand for fastener products.

• Despite uncertainties, we anticipate a gradual improvement in the outlook, driven by the expected restart of major infrastructure construction projects in Malaysia.

Valuation

• After factoring in the revised earnings and rolling forward our valuation base year to CY25, we lower our target price from RM1.41 to RM1.11, based on an unchanged target PER of 9x. Downgrade the stock to Sell from Hold previously.

Source: TA Research - 28 Feb 2024