Chin Hin Group Bhd (Sept 19, 91.5 sen)

Maintain outperform with unchanged target price (TP) of RM1.08: Chin Hin Group Bhd (Chin Hin) announced that its indirect wholly-owned subsidiary, Sage Evergreen Sdn Bhd had entered into a sale and purchase agreement (SPA) with TKW Capital Sdn Bhd for the acquisition of a parcel of freehold land measuring about 20.7ha in Johor. We are positive on this acquisition as it is in line with the group’s expansion plans and we anticipate further earnings enhancements upon the new plant’s completion from more Singapore-based orders owing to its strategic location.

This parcel, with an aggregate area of about 20.7ha is located in Mukim of Kota Tinggi, Daerah Kota Tinggi, Johor. Acquired for a cash consideration of RM21.9 million, the amount will be fully financed through its internal funds and will take three months to complete. We view this acquisition positively as it is in line with Chin Hin’s expansion plans, enabling it to also benefit from more Singapore-based orders considering its vicinity to Singapore, its biggest wall panel customer. 

To recap, due to limitations in its existing plant to fulfil market demand (as reflected in longer lead time of four to five months), the group plans to further increase the Autoclaved Aerated Concrete (AAC) and wall panel capacities by an additional 420,000m3. The new AAC and wall panel plant will be installed with high-tech German machinery, which was purchased in April 2016 though with delivery at a later date. With the new technologically advanced lines, the group could further improve its production efficiency by reducing wastage. In addition, a precast concrete plant with an additional 45,000 tonne capacity will be built next to the AAC plant in Johor. Contribution from the new plants will only kick in by first quarter of financial year 2018 (1QFY18). Total capital expenditure (capex) of RM85 million is allocated for this Johor expansion plan. To date, the group has spent about RM40 million (about half of the total capex) for machinery and land cost. 

Our earnings estimates remain unchanged. We maintain our TP of RM1.08 with an “outperform” call. We continue to hold our view that Chin Hin is an attractive long-term investment proposition owing to government’s continuous initiatives to improve the water and sewerage sectors while also promoting green building development which could further enhance its future growth through greater adoption of AAC-based products. — PublicInvest Research, 19 Sept

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This article first appeared in The Edge Financial Daily, on Sept 20, 2016. Subscribe to The Edge Financial Daily here.

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