Chin Well Holding Berhad (Recession Proof Exporter)

Chin Well Holding Berhad (Recession Proof Exporter)

Chin Well Holdings Berhad (CWHB) is a Malaysia-based investment holding company. The Company, through its subsidiaries operates in three segments: fastening products, which include the manufacturing and trading of screws, nuts, bolts and other fastening products; wire products, which include the manufacturing of precision galvanized wire, annealing wire, hard drawn wire, polyvinyl chloride (PVC) wire, bent round bar and BRC wire mesh, and investment holding.

Excluding Malaysia & Vietnam (main factory) which business is dominated in local currency (MYR, VND), Chin Well remaining 74.8% business is export, which is mainly dominated in Euro & USD. A recent appreciation in EURO and USD contributes a positive impact on the company in term of profit margin. While on the other hand, most of their costs are source locally, which promises a better earning prospect for FY16.

Key Statistic (Millions)	2013	2014	2015
Cash and Equivalent	30.70	47.93	55.16
Total Asset	549.25	556.74	571.55
Total Liabilities	144.27	117.14	123.55
Borrowings	85.46	73.14	53.01
Shareholders Fund	404.98	439.60	448.00
Book Value Per share	1.30	1.39	1.58
Net Cash	(54.76)	(25.21)	2.15
Cash Per share	0.11	0.17	0.19
NTAPS	1.30	1.39	1.58
Total share outstanding	272.53	272.53	283.51

Key Ratio and Statistics

·         Total Asset RM571.5 million, Total Liabilities RM123.5 million, Total Equities RM448 million

·         Cash Per-Share RM0.19

·         Zero gearing/ Net cash, note that Chin Well finally turn into a net cash company in FY15 (note that, the company make an effort to reduce company gearing yearly)

·         Book Value Per-share RM1.58, Price to book value 0.90 times, which is very low (based on current price 1.42)

·         Reserves which is qualified for 1 for 1 bonus issue

·         Price to earning 10.3 times (based on current price 1.42)

·         Debt to Equity ratio 0.27x

·         Return on Equity 9.3x

·         Dividend Pay-out policy 40%

Chin Well (Completing they cycle of European recovery)

Chin Well business possesses its own defensive unique. In almost every major sector in the economy (automotive, construction, property development, furniture, oil & gas, technology) consumes Chin Well products. Based on the revenue breakdown above, we can see more than 56% of Chin Well products are exported to the European countries. While the extension of EU anti-dumping duty to the china fastener manufacturer for 5 years (March2015- March2020), grant Chin Well a big favor in term of business market share, as it is one of the eight companies in Malaysia that is exempted from this regulations.

The recent drop in the steel price furthermore boosts the company profit margin, as the raw material is accounted for 70% of its production cost. ECB Quantitative Easing, continues to spur European economic growth, and it is deems a great opportunity for the company to position itself for a greater and a better FY16 prospects. 

As according to the Executive Director Tsai Chia Ling, GST effect does them a favor as they could save up 4% of the tax rate as their current sales tax is at 10%. Other than that, according to her, Chin Well Vietnam plant operates at 90% capacity while Malaysia plant 50% capacity, which literally gives them an opportunity to cater their customer upcoming demand.

Recap

Chinwel, is a lagging exporter company yet to be discovered, Net cash with good dividend yield and amazing future prospect.

Price 1.40

Target 1.70

Excel Force MSC Berhad

(Defensive yet Attractive)

§  Excel Force MSC Berhad (EFORCE) is currently the market leader in Malaysia for the provision of financial services business solutions. With more than a decade of experience in offering information systems and services to the Banks and Stock-Broking Companies in Malaysia, EFORCE is the first IT Company in Malaysia to provide a total, comprehensive and market-proven business solution for the stock broking industry from Front Office to Back Office. Over the years, EFORCE have built up a considerable number of well-established Stock Broking customers as well as renowned Financial Institutions and have attained approximately 90% of stock broking Public Gallery Display System and 70% of Electronic Client Ordering System market share in Malaysia.

§  Eforce reported a full year FY14 Net Profit of RM8.6 million (-11.24% QOQ, +23.2% YOY). The decrease in net profit QOQ, mainly caused by the disposal of office amounting RM1.6 million (net expenses for bonus issue and warrants).

§  From previous year, Revenue rose to RM21.6 million (+5.8% YOY), mainly attributed by the increase in Application Service Provider (ASP) by RM1.61 million and Application Solution (AS) with a slight boost of RM424 K. On the other hand, Maintenance Segment revenue decreases by RM787 K.

§  Eforce revenue and profit have been growing steadily over the past 5 years in despite of the market volatility.

§  Eforce has been lying on a comfortable growth of average 10.33% CAGR over the past 5 years, and estimated to continue on a modest growth over the coming years.

§  With an improving operational efficiency over years, EFORCE registered a 39.4% profit margin and 19.86% ROE closing FY14 with a tremendous improvement.

§  With the Current Payout Ratio of 60%, and DPS of 2.5 cent for FY14 the estimated Dividend Yield (DY %), is 4.1% based on current price of (RM0.605).

(EFORCE Balance Sheet, figures extracted from Annual Report)

Key Statistic (Millions)	2012	2013	2014
Cash and Equivalent	26.33	24.04	20.55
NCAV	33.1	28.8	26.9
Total Asset	47.4	43.5	54.5
Borrowings	1.8	1.3	7.2
Shareholders Fund	40.4	39.1	43
Book Value Per share	0.20	0.19	0.21
Net Cash	24.53	22.74	13.35
Total share outstanding	206.77	206.77	206.77

§ 

Eforce is sitting on a healthy balance sheet with Zero-Gearing, 10 cents cash per-share and currently trading at 2.88 times P/BV

§  Potential for Bonus issue based on the Paid Up Capital and the Retained earnings

Outlook

§  Existing EFORCE customer (Alliance Investment, Bimb Securities, Hong Leong Investment, Jupiter Securities, Kenanga Investment, Maybank Investment, Malacca Securities, Public Investment, RHB Investment, UOB Kay Hian) already captured 70% market shares of the Electronic Client Ordering System in Malaysia.

§  After a successful penetration in Thailand and Vietnam, next EFORCE will be focusing on the penetration of other Asian region (Hong Kong, Taiwan, Indonesia & China)

§  A bright prospect, as company in focus on enhancement, development, and implementation of their product to existing and new clients.

§  Eforce is sitting on a comfortable economic moat, a sustainable competitive advantage against its competitor N2N Connect.

§  Defensive business model, as changes in economic settings will not have a significant impact on company earnings.

Valuation

§  Target Price based on Dividend Discount Model Valuation

Current Price: RM0.605

Target Price 1: RM0.69

Target Price 2: RM0.79

Target Price 3: RM0.92

Disclaimer: This is a personal research that reflects personal views and opinion. The full content of this research paper, including any views or opinions presented should be treated for educational purpose only. The author shall not warrant or assume any legal liability or responsibility for the accuracy, completeness or usefulness of any information provided on this site.