There is no reason to command a 10x PE esp in a business that has no moat and competitive advantage. 21 sen earnings assumption have no valid reason too. Investors please never forgot to look into business models. If one has no moat or progressive business growth and sustainability, strong discount should be considered rather than assumption based on macro factors. Even financial valuation alone (without taking the business model into account), I shall refute this article's TP. Thanks.
Do anyone consider the 1st comment I bring it up ? Today during the analyst briefing, MAYBANK had told us that due to scrap of anti-dumping policy, their fastener profit margin will shrunk to single digit.
no, i'm not talking about share price. I'm not big boys either, so I don't know the fluctuation of CHINWEL price.
I'm talking about fundamental changes... Things change. Effective from 26 Febuary, they scrap the policy already, and you state it as advantage is a big wrong information.
Ok, Let's see how market response tomorrow, chinwel price either continue slump down or rebound a bit, will set exit price based on average cost 1.637, either can reap profit or cut loss to free up capital.
Hahahah CFTrader dun tell half dun tell half please~ i was at the briefing also.. The single digit only applies to certain products.. and only certain products are subject to benefits of anti dumping regulation.. hahhahaa ask ur Maybank brief more precise.. Their business are DIY driven.. See their MSIA sales~~ today they told what are the MSIA growth going forward no? What are the wire products margin going forward no?
Icon8888 no nid think.. EU has already complied and posted on their website stating the regulation was removed... The main issue is not about whether EU remove or not.. Do you all know how small are their products that are subjected to benefit of Anti Dumping? hahaah their other orders have long been better than China products in terms of quality... Ask CFTrader tell you what was in the briefing instead of only talking negative hahahha u all can continue create fear... i am collecting happily~~ hahahaaa
Chin Well (MYR1.67): Anti-dumping repealing to affect ~10% We attended Chin Well’s 2QFY6/16 result and corporate update briefing today. The repealing of anti-dumping law in EU for fasteners from China (effective 26-Feb) may not be as bad as it seems.
In terms of numbers, only its bulk sales of bolts may be affected, which makes up 20% of EU sales, i.e. MYR56m (~11% of FY15 revenue). In the likely scenario of margin compression due to the need to match China’s pricing, management has guided for single digit margins. This division is enjoying ~15% PBT currently. If this halves to 7.5%, the estimated PBT reduction is MYR4.2m, i.e. less than 10% of FY15 PBT.
We also find comfort in (1) China’s labour cost increase; (2) part of the repealing involved a promise of being more environmentally friendly, lowering CO2 emissions and proper waste water treatment (Chin Well pays MYR0.6-0.7m every month); (3) China’s promise to cut 15% output over five years; (4) Failure of China manufacturers to stock up on wire-rod which saw prices shoot up 30% since January; (5) perception of inferior quality of China products; (6) most customers would source from various countries (as per past practice) for risk and cost hedging.
It is hard for China to penetrate the DIY market as it is labour intensive and there is usually a 1-year customer audit period. Cost wise, environmental cost increase could mean a levelled playing field for others vs China by 2020. Lastly, there will also be a time-lag of at least a few months before China’s threat materialises, due to the above mentioned factors.
Having said so, the fact is everyone is holding back big/bulk orders awaiting China players' pricing. Chin Well has only received small urgent orders during this period.
Whilst it will be hard for Chin Well to repeat its 1HFY6/16 PATMI growth of 113% with the expected headwinds, management has shared two expansion plans.
It intends to invest ~USD400k for a gabion machine end-2016. Currently, its gabion and fences capacity are fully utilised. In 2Q, wire product revenue jumped 28.2% YoY as it secured more new projects in Malaysia and began regular supplies overseas.
Chin Well is also looking to set up a recurring source of income. It has commenced construction of a new automatic warehouse in Port Klang for MYR12.8m, which will complete within 6-9 months. It plans to utilise 30-40% of the space, whilst renting the remaining out for storage of hardware related items. At 80% utilisation, management hopes for ~MYR2m p.a. contribution.
Separately, on the US side, it seems that the worst is over. Orders are coming in, though not consistently and not at previous levels. PrimeSource is Chin Well’s only customer in the US and the supplier of Home Depot. The PrimeSource takeover resulted in inventory rationalisation and order halts (due to over stocking previously) which affected Chin Well significantly.
The group’s balance sheet remains solid. It currently has a net-cash position of MYR71.4m.
As its stellar performance is not expected to continue into the 2H, we look at its 12M trailing EPS of 20.7sen (vs. annualised 1H EPS of 24.6sen). The stock is trading at 8.1x trailing EPS, which is below its 3-year historical average PER of 11.4x.
Please be mindful that capex has been lagging behind depreciation since 2011 or probably even longer. It could be a sign the company is underinvest, thus inflating FCF. And when you look at the total assets has been failing for 4-5 years already, you need to ask can they continue to grow revenue with less and less assets? Something got to give.
Refer to the link above, sorry not total assets but property plants and equipments assets - those are the one that drive revenue. It is going down from 183 mil to 155 mil. You may be right they are becoming efficient, but it is assumption.
a company as competent as Chin Well is unlikely to save money at the expense of future prosperity (kill the goose to extract eggs)
one possibility is that actual wear and tear is lower than depreciation charges
depreciation charges is an accounting figure (straight line reduction irregradless of what happens to the machines and equipment)
capex on the other hand, is dictated by actual wear and tear
if the equipment is maintained well, they will need to spend less on capex (despite higher depreciation charges) and yet maintain the same amount and quality of equipment for production
Posted by JT Yeo > Mar 11, 2016 08:01 AM | Report Abuse
Please be mindful that capex has been lagging behind depreciation since 2011 or probably even longer. It could be a sign the company is underinvest, thus inflating FCF. And when you look at the total assets has been failing for 4-5 years already, you need to ask can they continue to grow revenue with less and less assets? Something got to give.
Europe $ QE,lead to $ depreciation..that's the core issue.
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Posted by CFTrader > 2016-03-10 21:58 | Report Abuse
Hi. Please be informed that the European had scrap the anti-dumping tax of China ... ...