Chin Hin in consolidation mode

This article first appeared in The Edge Malaysia Weekly, on April 2, 2018 - April 08, 2018.
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WE have not rested since listing,” Chin Hin Group Bhd group managing director Chiau Haw Choon declares.

Not that the integrated building materials provider intends to be idle this year. The 34-year-old Chiau indicates that this year will be more of a breather to make the most of acquisitions from its aggressive expansion strategy after listing in March 2016.

“This year, we don’t have any major acquisitions in store as it is time for us to consolidate our business and start production on the capacity we have built,” he tells The Edge in an interview.

Among the group’s acquisitions is a new autoclaved aerated concrete (AAC) plant in Kota Tinggi, Johor.

“With the plant, our AAC capacity will increase from 475,000 cu m to 1,075,000 cu m — a more than 100% increase.

“Our existing plant [in Serendah, Selangor] is already running at full capacity, so we are quite optimistic that with the additional capacity [coming] onstream, it will aid our bottom-line growth.”

(AAC products are lighter in weight compared with regular concrete, and Chin Hin’s subsidiary, Starken AAC Sdn Bhd, specialises in the manufacturing of AAC products as an alternative to cement bricks and clay bricks.)

Chiau is looking for double-digit earnings growth for the financial year ending Dec 31 this year mainly from its bread-and-butter manufacturing business.

Apart from AAC, the group manufactures precast concrete, ready-mixed concrete, fire rated doors, wire mesh and metal roofing systems. Its 4,000 customers range from small hardware shops to major property developers.

Earnings are also expected from its maiden prefabricated modular building system. Recall that last December, the group announced it will be constructing an integrated workers complex in Pengerang, Johor, for RM238.3 million.

Chiau says the project is not the average run-of-the-mill construction project because it incorporates the modular building system — ostensibly the highest level of industrialised building system.

“You will not see a lot of people working at the construction site as most of the work is done in our factory. Our venture into modular building systems uses our material, such as the Starken AAC panel and fire doors. The fact that we can source our raw materials in-house is a competitive edge, and great synergy for us.

“The Pengerang project is the first modular building system contract for us and we look forward to securing more of such projects, which may include some overseas contracts, in the next few months,” says Chiau.

The group’s outstanding order book for the modular building system is RM190 million — enough to last another nine months — while its manufacturing order book is around RM200 million, or sufficient for another 12 to 16 months.

For its latest financial year ended Dec 31, 2017 (FY2017), the group’s net profit of RM29.64 million was 28% lower than the preceding year’s RM41.43 million. FY2017 revenue declined 4% to RM1.01 billion.

All of Chin Hin’s divisions were profitable except for its wire mesh and structural steel manufacturing divisions. Chiau says some corporate exercises will be undertaken to address this, but did not elaborate.

However, he reveals that a hedging strategy for raw materials will be put in place to manage costs.

Chin Hin’s FY2017 earnings per share amounted to 5.66 sen. At last Thursday’s close of RM1.12, it is trading at a historical price-earnings ratio of 19.8 times. According to Bloomberg, the group is valued at 10.98 times forward earnings.

In a Feb 28 note, TA Securities says it expects the manufacturing segment to remain the core driver of Chin Hin’s earnings.

“We remain positive about the group’s outlook, especially after factoring in the potential net profit contribution of RM15.4 million from the Pengerang project as well as the new AAC production plant in Johor, which is expected to be operational in the second quarter of 2018.

“We are cautiously optimistic about the recovery of the manufacturing of wire mesh and metal roofing segments as we believe the group should be able to implement a turnaround plan by gradually passing on the costs to customers.”

TA has maintained its “buy” call on the stock with a target price of RM1.39.

PublicInvest Research says in a Feb 28 note that it remains assured of the longer-term growth prospects of the group, underpinned by contributions from its AAC and precast concrete businesses, as well greater penetration in the modular building system space.

“To err on the side of conservatism in the light of soft operating conditions however, we are lowering our FY2018 and FY2019 earnings estimates by an average of 16% to account for higher costs and slower growth. Our target price is consequently lowered to RM1.38 from RM1.67 previously, based on a 13.5 times price-earnings multiple to FY2018 earnings per share of 10.2 sen. Our ‘outperform’ call is affirmed nonetheless.”

Chiau and his family, including his father — deputy chairman Datuk Seri Chiau Beng Teik, who founded Chin Hin — and his mother Datin Seri Wong Mee Leng, control nearly 60% of the group through their respective direct stake and via Divine Inventions Sdn Bhd.

Year to date, Chin Hin shares have declined 7.4%. It has a market capitalisation of RM623.15 million.



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