Chin Hin Group Berhad, an integrated building materials player in Peninsular Malaysia with 40 years of history, is slated for listing on 8 March 2016. The group has two main business segments, distribution and manufacturing, with more than 80% of its revenue derived from the former at present. Our fair value for Chin Hin is RM1.06, based on a 12x multiple to its FY17 EPS of 8.84sen. Our estimates are supported by i) growth prospects of the Autoclaved Aerated Concrete (AAC) products in the property market despite softer market conditions, ii) capacity expansion in the Starken AAC and G-Cast Concrete plants, with stronger earnings contributions expected from FY17 onwards, iii) healthy orderbook in its manufacturing segment, iv) recurring earnings from solar power panels.

• Background. Chin Hin is involved in the distribution of building materials and provision of logistic services in addition to being manufacturers of AAC products, precast concrete products, wire mesh and metal roofing systems. To-date, it supplies more than 1,000 types of buildings materials to its customers across Peninsular Malaysia except Perlis.
• Earnings going forward are supported by i) recurring earnings from its solar power generation (it has entered into a 20-year agreement with Tenaga Nasional Berhad (TNB) to supply 1.4MW worth of renewable energy ii) strong orderbook of RM177.6m from its manufacturing segment, of which RM76.9m is to be fulfilled by 2016 and the remainder by 2018. iii) capacity expansion of Starken AAC and G-Cast. We expect contribution will only kick-in FY17 onwards. iv) better product mix with higher-margin products.
• Autoclaved Aerated Concrete (AAC). AAC product is a type of lighter-weight concrete which is claimed as an eco-friendly green product building material. Usage of AAC can save on plastering costs, as it only applies a layer of skimcoat instead of being plastered. Hence, it is c.10% more cost effective compared to clay and cement sand bricks. Other key advantages are its fire resistance, durability, dimensional accuracy, eco-friendliness, water resistance and good workability. We understand AAC is widely accepted and used in developed markets, especially Europe. We note Singapore is a potential market for the group as the country imports 200,000m3/annum from China. With its characteristics and alternative to clay and cement sand bricks, we believe AAC could slowly eat into the market share of clay and cement sand bricks.
• Expansion of own product range. The group intends to widen its own product range. It plans to introduce i) wire mesh with a focus on fencing system and engineering mesh such as twin wire mesh, ii) reinforced AAC wall panels, slabs and other precast structural elements, iii) precast products and jacking pipes with anti-slide steel collar and precast slabs for multi-storey car parks and floating islands. It is also exploring alternative type of raw materials and developing new mix designs to cater its customers’ needs

Source: PublicInvest Research - 23 Feb 2016