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Tuesday, February 28, 2017

CHIN HIN - Strong Growth Ahead

Author: PublicInvest   |   Publish date: Tue, 28 Feb 2017, 09:43 AM 

Chin Hin reported an FY16 net profit of RM44.8m (+48.3% YoY), but which included an RM13.8m revaluation surplus from its investment properties recognized under other operating income. Excluding that and one-off listing expenses of RM2.9m, core net profit of RM33.9m came in within expectations at 96.9% of full-year estimates. We leave FY17 estimates unchanged but raise FY18 by 9% to factor in margin changes for its capacity expansions not fully accounted-for previously. We remain enthused over Chin Hin’s near to medium term growth prospects, underpinned by its expansion plans. Our Outperform call is affirmed with an unchanged target price of RM1.12 at this juncture, premised on 12x multiple to FY17 EPS of 9.4sen. We see scopes for further upside however.
  • FY16 revenue declined 11.5% YoY, as weak housing construction activities weighed on the trading (-19.3% YoY) and ready mixed concrete (-14.7% YoY) segments. Healthy growth was seen in its manufacturing segment however, strong contributions coming from AAC Starken and G-Cast which registered a collective 33.0% YoY improvement to RM126.9m. Group core EBIT and core net profit margin improved to 5.6% and 2.9% respectively (FY15 EBIT: 5.0%, NP: 2.5%), attributed to i) stronger contribution from the higher-margin manufacturing segment, and ii) better product mix in its trading segment. 4QFY16 net profit, in particular, was aided by a recovery in global steel prices which contributed to higher margins in the wire mesh segment, and additional earnings from 1MW of solar power generation.
  • Robust growth ahead. Large-scale expansion is underway in its high-growth manufacturing segment, currently limited by capacity constraints with plans running close to full utilization. The autoclaved aerated concrete (AAC) block capacity will see a doubling come 1QFY18 with the commissioning of its new facility in Johor. Pre-cast concrete capacity has already been expanded from 45,000 metric tonnes to 300,000 metric tonnes located across 4 sites (2 owned, 2 leased). So much capacity, is there sufficient demand though? We reckon so, considering the Malaysian government’s reaffirmed focus on affordable housing developments and its initiatives in the water and sewerage sectors. Add to that the growing levels of infrastructure-related developments regionally, prospects are bright. Incidentally, AAC wall panels are acceptable to the Housing Development Board of Singapore’s (HDB) projects and have also recently made some headway in the Philippines market.
Source: PublicInvest Research - 28 Feb 2017

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