CHINHIN (5273) - Chin Hin Group Berhad on buying spree

Saturday, 8 July 2017

After acquiring three companies, it now eyes stakes in three solar power firms

MORE than a year after its debut on the Main Market of Bursa Malaysia, building materials manufacturer Chin Hin Group Bhd is on a buying spree.

Earlier this year, Chin Hin had engaged in a series of acquisitions worth over RM52mil as the group acquired fire-rated door manufacturer Midah Industries Sdn Bhd, door locks and accessories supplier Epic Diversity Sdn Bhd and concrete pipes producer Mi Polymer Concrete Pipes Sdn Bhd.

Now, the company has also proposed to buy equity interests in three solar power-related entities for a total sum of RM24.75mil, as it eyes further expansion in its solar power investment business.

Chin Hin has signed a memorandum of understanding (MoU) with Atlantic Blue Sdn Bhd, Powertrack Sdn Bhd and Solarvest Energy Sdn Bhd to acquire a 45% stake in each of the solar power firms.

Chin Hin is positioning itself as a one-stop integrated building materials supplier, as it covers “roof-to-basement” construction needs.

In a reply to StarBizWeek, Chin Hin group managing director Chiau Haw Choon notes that its recent acquisitions will widen its in-house manufactured products and strengthen its market position as integrated building materials provider.

“(The) solar power business is part of our group’s income stream. The proposed acquisition will enhance the group’s solar income.

“We have to ensure all business units are on track and contributing positive results before thinking of our next acquisitions. We do not foresee any more new major acquisitions to happen this year.

“The market may perceive us to be a bit aggressive but we adopt a very cautious and prudent approach,” says Chiau.

One of the three solar power companies, Atlantic Blue controls approximately 10% of the market share of solar projects in Malaysia, by way of mounting over 30 megawatts of solar panels on rooftops for residential and industrial buildings across the country.

It is also a strategic partner of ET Solar, a global engineering, procurement and construction provider of smart solar energy solutions for large-scale solar opportunities in South-East Asia.

In a recent note, PublicInvest Research highlights that the global solar photovoltaic industry will see a growth of more than 60% from the current 303 gigawatts to 498 gigawatts by 2019.

“Renewable energy generation is a growing business, and it is a big business. Malaysia’s 500-megawatt quota under the new net metering scheme this year presents ample growth opportunities domestically,” says the research unit.

Add’s Chin Hin’s Chiau: “Currently we have 2.85 megawatt solar generating capacity that able to contribute about RM3mil in profit per year. With the proposed acquisition of the three target companies, our solar power segment shall be able to contribute up to RM7.5mil per year to our group’s earnings”.

The acquisitions of the three solar power companies will come with profit guarantees of RM10mil per annum for the next two years ending March 31, 2018 and 2019.

PublicInvest Research which issued an “outperform” call on Chin Hin, reckons the deal makes financial sense considering the earnings potential.

“The acquisitions implies a value of RM55mil for the three companies in question, and prices the acquisition at 5.5 times earnings multiple based on the profit guarantee and about 8.5 times historical earnings, not expensive in our view,” it says.

Moving forward, Chin Hin does not foresee any significant increase in its capital expenditure, as the firm indicates that there will be no major acquisitions for the year. A total of RM40mil has been allocated for capital expenditure this year, to buttress the company’s further expansion.

Commenting on the possibility of Chin Hin diversifying into the rebuilt commercial vehicle segment following the emergence of Chin Hin’s founder and deputy executive chairman Datuk Seri Chiau Beng Teik as Boon Koon Group Bhd’s substantial shareholder few months ago, Chin Hin dismissed any plans to venture into the segment.

“We do not have any intention to inject Boon Koon’s business into Chin Hin Group. Building materials still remains the core business for Chin Hin Group,” says Chiau.

Beng Teik controls a 24.18% stake in the loss-making rebuilt commercial vehicle manufacturer Boon Koon.

Strong financial performance

The building materials manufacturer which is labeled as one of the hidden small cap gems on Bursa Malaysia by RHB Research, has seen its share price rallying since beginning of the year.

Year to date, Chin Hin’s share price is up by approximately 50% at RM1.29 at press time. To note, its share price reached a record high of RM1.47 in May this year.

The conglomerate has a market capitalisation of about RM652.6mil and a price-to-earnings ratio of 16.12 times. Beng Teik is the largest shareholder in Chin Hin as he controls 66.3% of equity in the firm directly and via Divine Inventions Sdn Bhd.

For the financial year ended Dec 31, 2016 (FY16), Chin Hin posted revenue and net profit of RM1.06bil and RM44.8mil respectively.

The firm’s gross profit margin hovered around 9.3% as at end-2016.

Chin Hin which is currently in a net debt position of RM316.94mil, plans to pare down its debt level going forward. As at end-2016, its current gearing ratio stood at 1 times.

“We target to pare down our bank borrowings by RM23.6mil through the proceeds from our proposed private placement. Our ideal gross gearing ratio is below 0.8 times,” says Chiau.

In order to pare down its bank borrowings and expand capacity, Chin Hin plans to raise about RM61.21mil via a private placement of 10% its share capital. The corporate exercise is anticipated to be completed by the third quarter of this year.

For the rest of the year, Chin Hin remains cautiously optimistic on its financial performance in consideration of the challenging business environment.

“Our precast concrete’s production capacity has been increased to 300,000 metric tonnes in 2017 and now our next focus is to ramp up the capacity to cater for full range of precast concrete products especially after the acquisition of MI Polymer.

“With regard to our order book, currently we have an order book value of about RM240mil, mainly contributed by our manufacturing segment which will keep us busy over the next 18 months,” adds Chiau.

CHINHIN (5273) - Chin Hin Group Berhad on buying spree