Chin Well Holdings Bhd
(Aug 8, RM1.80)
Maintain buy with an unchanged target price (TP) of RM2.20: We visited recently the fastener plant in Butterworth, Penang. The plant has an annual production capacity of 84,000 tonnes and it primarily serves the Malaysian market, the Southeast Asian market and smaller players in Europe. The products that are manufactured in this plant are mainly bigger-size fastener products for industrial users. Moving forward, we expect earnings to remain resilient, underpinned by increasing sales orders from the US market as a result of the ongoing US-China trade war.

Meanwhile, the management guided that it is likely to maintain a dividend payout ratio of 40% as the group intends to reserve the cash for expanding its portfolio mix, especially for wire products. We maintain our “buy” call on Chin Well Holdings Bhd with an unchanged TP of RM2.20.

The fastener plant in Butterworth, Penang commenced operations in 1989. The plant has an annual production capacity of 84,000 tonnes. The main raw material that is used to manufacture fasteners is wire rods, which are mostly imported from China.

The current plant utilisation rate of the Malaysian plant is approximately 38% with 420 staff, and the plant serves mainly local, Southeast Asian and smaller players in Europe.

Ever since the US imposed a 25% tariff on fasteners products originating from China, the group has managed to secure additional orders from the US market. Meanwhile, the trade war has also led to more intense competition in the European market as a result of dumping from China. The management guided that the increasing sales orders, couple with higher margins in the US market, are sufficient to offset the setbacks from the European market.

Assuming a dividend payout ratio of 40%, this shall translate into decent dividend yields of about 4.4%, 4.7% and 5% for FY19, FY20 and FY21 respectively.

We maintain our FY19 to FY21 earnings forecasts.

We have made no change to our TP of RM2.20, based on an unchanged 10 times calendar year 2020 earnings per share. — TA Securities, Aug 8