Chin Well Holdings (Chin Well) reported a headline net loss of RM4.6m (-280% YoY, -225.7% QoQ) for 1QFY25 despite a stronger revenue. The loss was attributed to lower margins, a decline in average selling price (ASP), and foreign exchange (forex) losses stemming from the strengthening of Ringgit Malaysia against the USD. Excluding unrealised forex losses of RM4.2m, the Group's estimated core net loss stood at RM0.4m. The results were below both our and consensus expectations. We cut our FY25-27F earnings forecasts by an average of 25% to account for higher cost and lower margin. Consequently, our PE based target price is revised to RM0.46 (RM0.67 previously), and we maintain our Underperform call on Chin Well. No dividend was declared for the current quarter.

• 1QFY25 revenue increased to RM105.9m (+26.4% YoY, +11.1% QoQ), driven by stronger contributions from the Fasteners (+27.5% YoY) and Wire products (+22.8% YoY) segments. Demand in both divisions improved during the current quarter, primarily due to lower ASP, which resulted in higher sales volumes. However, the revenue growth was partially offset by intense price competition and forex losses.
• 1QFY25 slipped into loss after tax of RM4.6m, compared to a profit of RM2.6m in 1QFY24, despite reporting an improvement in revenue, dragged by losses in both the Fasteners and Wire products divisions and forex losses stemming from the strengthening of Ringgit Malaysia against the USD. The Fasteners division reported a loss before tax (LBT) of RM1.9m, driven by lower ASP, which adversely impacted profit margin. Additionally, Chin Well recorded a LBT of RM3.3m in the Wire division, attributed to intense price competition in the market, as well as foreign exchange losses.
• Outlook. Global demand for products remains subdued due to ongoing geopolitical conflicts, escalating tension between US-China relations, and the looming threat of a recession in major markets. additionally, Southeast Asia nations are preparing for more turbulence ahead after newly elected President Trump announced plans to impose a blanket tariff regime of 10% on all imports.

Source: PublicInvest Research - 28 Nov 2024