CHIN Hin Group Bhd, a homegrown building material specialist that debuted on Bursa Malaysia five months ago, is now on the hunt for mergers and acquisitions (M&A) in a bid to complete and enhance its product portfolio.
Managing director Chiau Haw Choon says Chin Hin is in the midst of negotiating the acquisition of another local building material firm that would work with it synergistically and generate additional income for the group.
“If you look at our business model, we produce building materials, from roofing to the foundations of a house. This acquisition will complement our existing businesses [and help] fill the gap in the company’s offerings so that we can become an integrated building material solutions provider,” he tells The Edge.
It is learnt that the imminent acquisition, which will be paid for fully by internal funds, is set to be the largest M&A deal for Chin Hin since it was listed on the Main Market on March 8. As at June 30, its cash and cash equivalents stood at RM143.1 million.
Apart from organic growth, Chin Hin is also actively looking for more M&A opportunities to enhance the group’s earnings prospects. “We are eyeing several other companies. It is too early to disclose anything at this moment because we still have to sort out the details,” Chiau remarks.
Chin Hin is one of the country’s top three building material trading companies by product offerings with more than 1,000 items in its stable. It is also one of the largest cement distributors in Malaysia with over 4,000 customers, from big construction companies to small hardware shops.
Chiau is confident that Chin Hin, which has a distribution network of 11 branches and four warehouses across Malaysia and Singapore, will be able to increase its market share after its acquisitions.
Chiau, whose father is the company’s deputy executive chairman, Datuk Chiau Beng Teik, was appointed to the board in January last year. At 32, he is believed to be the youngest CEO of a locally listed company.
To recap, Chin Hin was founded by Beng Teik in 1974 as a small building material trader with limited capital and credentials. Today, the group is a one-stop building material supplier with a diversified product portfolio comprising autoclaved aerated concrete (AAC) and pre-cast concrete products, ready-mixed concrete as well as wire mesh products and metal roofing systems.
The company owns a pre-cast concrete plant with a production capacity of 35,000 tonnes and an AAC block plant (420,000 cu m) in Serendah, Selangor. As these plants are running at full capacity, the group is building three new ones in Bidor, Perak, and Kota Tinggi, Johor.
The pre-cast concrete plant in Bidor will provide an additional capacity of 45,000 tonnes and is expected to be operational in November.
Chin Hin is also finalising the acquisition of 50.6 acres in Kota Tinggi for RM22 million. The group will spend another RM85 million on purchasing machinery and equipment and plans to set up a 45,000-tonne pre-cast concrete plant and a 600,000 cu m AAC block plant on the site.
“Johor will be a big expansion for us. Total investment is more than RM100 million, which will be incurred in the financial years ending Dec 31, 2016, to 2018,” says Chiau, adding that the two plants in Johor are targeted to commence operations in the last quarter of 2017.
In Nilai, Negeri Sembilan, Chin Hin operates a steel factory that manufactures wire mesh and metal roofing systems. Its production capacity will increase by 2,000 tonnes per month with new machines and it will start to contribute to the bottom line in the first quarter of next year.
In the first half ended June 30, 2016 (1HFY2016), Chin Hin saw its net profit drop 10.5% year on year to RM13.73 million. Revenue declined as well, by 12.8% y-o-y to RM553.02 million. The weaker results were attributed to the softening of housing construction activity.
Chiau expects Chin Hin to perform better in 2HFY2016 as the one-off listing expense of RM2.92 million was incurred in the first half of the year. “We are making very good progress. Our manufacturing plants are fully utilised, which is why we are increasing our capacity. Everything is in order,” he says.
Chiau is not overly concerned about the group over-expanding because it is getting more orders than it can handle. This means the orders in hand will be able to quickly absorb the extra capacity.
“Despite a slowdown in the property sector, AAC blocks are still in great demand locally, which has corresponded with a 22.4% increase in our sales volume y-o-y. We believe this is due to a shift by the government, developers and even consumers to green buildings,” Chiau says.
He expects the company’s pre-cast concrete division to directly benefit from the water and sewerage projects being rolled out by the government. To date, its manufacturing order book has reached RM200 million.
Chin Hin debuted on Bursa at 81 sen, a 16-sen premium to its issue price of 65 sen. The stock closed at 86 sen last Friday, giving the company a market capitalisation of RM435 million.
Given Chin Hin’s strong earnings growth story, Chiau believes its market cap will continue to grow.
“We are set to hit a RM1 billion market cap in five years. But to achieve this, we need to enhance the group’s earnings via acquisitions alongside organic growth,” he says.
Commenting on stock valuations, Chiau opines that Chin Hin, which is trading at a price-earnings ratio of 12.3 times, is not expensive, given the company’s sustainable business model and strong earnings growth in the coming years.
“I believe our share price will move up steadily, driven by our earnings,” he says.
The trailing 12-month dividend yield offered by Chin Hin is relatively low at 1.7% as the company had declared a first interim dividend of 1.5 sen only at end-May.
“We wish to continue to reward our shareholders but much depends on the company’s profitability and cash flow requirements for our expansion plans. We expect better results in 2HFY2016 in order to declare a final dividend,” Chiau concludes.
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