Chin Well Holdings (Chin Well) reported weaker net profit of RM0.3m (-97.0% YoY, -90.1% QoQ) for 2QFY24 on lower revenue and reduced profit margin. Cumulative 6MFY24 reported net profit of RM2.8m (-38.2% YoY) was below both our and consensus expectations, accounting for only 10.5% and 8.7% of full year estimates, respectively. The discrepancy was largely due to weaker than expected demand from European market and depressed average selling price (ASP) resulting from price competition from China. The outlook for the Group remains challenging, particularly in Europe as demand continues to be affected by the on-going geopolitical conflicts and higher manufacturing cost. We cut our FY24-25F earnings forecasts by an average of 20% to account for a slower demand growth recovery. Consequently, our PE-based target price revised to RM0.80 (RM1.00 previously) and retain our Underperform call on Chin Well. No dividend was declared for the current quarter.

• 2QFY24 revenue fell to RM83.6m (-25.0% YoY, -0.3% QoQ) attributed todampened demand and lower contribution from both the Fasteners (-19.8%YoY, -3.8% QoQ) and Wire product (-36.5% YoY, +11.2% QoQ) divisions.Both divisions saw a decline in demand during the current quarter due tounfavourable global market sentiment, particularly in Europe.

• 2QFY24 net profit decreased to RM0.3m (-97.0% YoY, -90.1% QoQ), inline with lower revenue and decreased margin. Fasteners division reporteda loss before tax (LBT) of RM0.32m compared to a profit before tax (PBT)of RM11.84m in the preceding year corresponding period, attributed to stiffprice competition. This was partly offset by PBT of RM0.53m in the Wiredivision. Pre-tax margin fell to 0.5% (1Q24: 4.0%, 2Q23: 10.5%).

• Outlook. Persistently high core inflation, elevated interest rates in mosteconomies and on-going geopolitical conflicts continue to weigh on globalgrowth and dampened demand for the Fastener products. One of theGroup’s key market - Eurozone barely avoided a recession in 4Q23 and isexpected to increase by only 0.8% in 2024 against 1.2% expected last Nov.To mitigate these challenges, the Group remains committed to grow itsdistribution network in the European and US market and expansion of newproducts in the downstream market to cushion margin squeeze andweakening demand. The imminent revitalisation of major constructionprojects in Malaysia should also support demand for the Group’s products.

Source: PublicInvest Research - 28 Feb 2024