Chin Well Holdings Berhad - Demand Remains Subdued

Date: 
2024-09-02
Firm: 
TA
Stock: 
Price Target: 
0.69
Price Call: 
SELL
Last Price: 
1.02
Upside/Downside: 
-0.33 (32.35%)

Review

  • Stripping off the extraordinary items amounting to RM2.1mn, CHINWEL’s FY24 results came in above ours and the consensus’ expectation. Its core earnings of RM11.2mn accounted for 112.9% and 106.9% of ours and the street’s full-year estimates, respectively. The surprise was largely driven by higher-than-expected finance income and lower-than-anticipated corporate tax rate.
  • The group has declared a single tier interim dividend of 1.8sen/share in 4QFY24, constitutes a dividend payout of 45.1% for the FY24. (FY23: 5.5sen/share).
  • YoY, CHINWEL’s FY24 revenue and core earnings declined by 24.7% and 65.5%, respectively. This was mainly attributed to subdued average selling price (ASP) and sales volume amidst global market uncertainties.
  • Conversely, in 4QFY24, core net profit surged to RM4.9mn from RM1.8mn in the previous quarter, accompanied by a 17.7% QoQ revenue increase. This improvement was largely attributed to higher contributions from the fastener division, although it was partially offset by losses in wire products due to higher fixed overhead costs and lower ASP.

Impact

  • Reflecting the ongoing headwinds affecting the group's outlook, we have revised our assumptions for ASP, sales volume, and finance income for FY25/26F, leading to a downward adjustment in our earnings estimates by 2.4%/8.5%, respectively. We also introduce our FY27 earnings forecasts, projecting a 15.0% earnings growth.

Outlook

  • The group remains cautious about the near-term market environment, citing challenges such as ongoing geopolitical conflicts, escalating USChina tensions, and potential recessions in key markets, all of which are dampening global demand for fasteners. However, there is cautious optimism regarding the expected resumption of major construction projects in Malaysia, which could boost demand from related sectors. The group also continues to explore new ventures to diversify its revenue streams and enhance long-term growth.

Valuation

  • Following the revised earnings forecasts, we reduce our target price from RM0.74 to RM0.69, based on an unchanged target PER of 9x CY25 earnings. Maintain Sell on the stock.

Source: TA Research - 2 Sept 2024

Discussions
Be the first to like this. Showing 0 of 0 comments

Post a Comment