China’s crackdown on polluting factories helps boost demand for Chin Well’s fasteners

This article first appeared in The Edge Malaysia Weekly, on April 9, 2018 - April 15, 2018.
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INVESTING in carbon steel fastener maker Chin Well Holdings Bhd is much like buying bonds, contends executive director Tsai Chi-Yun. “The good thing about investing in our business is it is like buying bonds. Sales are relatively stable because no matter what happens, there is a constant level of demand for fasteners as carbon steel fasteners can be applied to many parts of our lives,” Tsai explains in a recent interview with The Edge.

Having said that, she concedes that the past two years have been slow for the sector.

However, demand for fasteners is projected to pick up this year because of two main factors: less competition from China because of a clampdown on non-environmental friendly factory operations and stronger demand on the back of an economic recovery in Europe.

Chin Well’s annual report shows that sales to Europe for the financial year ended June 30, 2017 (FY2017) fell 8.5% to RM239.62 million, from RM261.92 million in FY2016. The European region accounted for 46% of the group’s RM521.29 million revenue, followed by Malaysia (37%).

On the supply side, she says, prior to 2017, the production costs for local manufacturers were a fourth more than Chinese manufacturers because of environmental compliance. This was made worse by cheaper Chinese supplies, which pushed prices down.

But prices are coming back up, she says, adding that most of Chin Well’s future expansion would be in Vietnam.

Chin Well’s current domestic production capacity is 5,000 tonnes a month — its 180,000 sq m plant in Vietnam is running at a similar capacity — but the Malaysian operations could be increased to 7,000 tonnes.

“Our capacity of 7,000 tonnes a month is a nice number, but only if we run 24/7,” she says, adding that while it is currently easier to get approvals to employ foreign workers in Malaysia, the long-term labour supply remains a concern.

“That is why we invested in Vietnam where labour supply is comparatively more consistent. Our expansion activities moving forward will happen relatively more in our Vietnam plant.

“And we are going into rebar couplers. The machines are coming in July and we will start production, so you will see sales of this range of products in FY2019.”

(Rebar couplers are connectors that form the end-to-end joint of two or more rebars in building construction. The current practice in Malaysia is to tie rebars with steel wire for a lengthier connection.)

“We will manufacture in Vietnam and sell to the entire Southeast Asia region. This construction solution is simpler, faster and safer. It is very commonly used in developed countries, especially Japan and Taiwan, where there are earthquakes and typhoons. In past disasters, the joints between rebar, which were tied with steel wire, were often the weak point of a building,” Tsai says.

Apart from this new product, Chin Well’s future growth will also be driven by the group’s wire mesh business operating under its wholly-owned subsidiary Chin Herr Industries (M) Sdn Bhd, she adds.

“We started off with manufacturing wire mesh that we sell to third parties to bend and shape into finished-products like fences. But now we want to add value to our products by selling downstream as well, so that our margins are higher. Eventually, we want to move fully into downstream.”

Chin Well is already manufacturing its own wire mesh downstream products such as gabion cages and mattresses for hill slopes and rivers. “Our orders are quite encouraging. For gabion cages, we supply to the River of Life project, and our welded wire fencing system is being used by housing and infrastructure projects such as railways.

“The welded wire fencing industry is competitive as well, but since we started selling downstream products only a few years ago, being a latecomer, our technology and product quality is relatively better,” she maintains.

For example, Tsai says, a conventional welded wire fencing system has a pole-to-pole width of between 1,800mm and 2,400mm, but Chin Herr’s products could go up to 3,000mm.

“That means fewer poles are needed to fence the same land size as compared with the conventional technique. This translates into lower costs, which is why developers prefer our product.”

But Tsai acknowledges that the revenue contribution from the wire mesh business remains smaller than fasteners.

“Chin Herr’s revenue is smaller than [the] fastener [business], but its growth potential is bigger, especially as we sell more finished products.”

For the six months to end-December 2017 (1HFY2018), wire mesh products contributed about 22% of Chin Well’s total revenue of RM298.47 million — 24.6% higher than the same period a year ago — while the remaining was from fasteners.

In the same period, Chin Well’s net profit rose 8.4% to RM29.33 million from RM27.07 million.

 

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