• Maintain SELL, new MYR0.57 TP from MYR0.65, 39% downside. Chin Well is expected to see QoQ improvement, driven by urgent orders following the US presidential election. However, this recovery is likely unsustainable as it stems from a one-off speculative demand amid concerns over potential tariff hikes. The outlook for other key markets remains weak due to high inflation and geopolitical tensions. With earnings downgraded for eight consecutive quarters, we see downside risks for both our and consensus forecasts.
• 1QFY25 earnings recap. CWH reported 1QFY25 (Jun) core loss of MYR0.4m (vs MYR2.3m profit in 1QFY24) despite a 26.4% YoY increase in sales. This was due to higher volume from reduced ASPs amid price competition, resulting in a 1.4ppt contraction in GPM to 7%. Sales growth in Malaysia (+3%), Europe (+83%), and Vietnam (+195%) offset a 20% decline in the US.
• Challenging outlook. According to management, the outlook for European market (34% of FY24 sales) remains challenging. Ongoing international conflicts have driven up energy prices - heightening the risk of a recession and dampening economic sentiment across the region. This has led to reduced infrastructure spending and softened demand for fastener products. While demand appears to have bottomed out, any recovery is expected to be gradual and contingent on a resolution to the conflicts.
• Tariff concerns driving demand. We understand that the US market (26% of FY24 sales) experienced a surge in urgent orders following the recent election, driven by panic buying amid fears of potential tariff hikes under Donald Trump's presidency. Note that the US currently imposes a 25% tariff on fastener products imported from China. We anticipate a one-off QoQ sales improvement in 2QFY25, supported by this increased demand before softening in 3QFY25 due to seasonal factors (festive holidays in January and the shorter month in February).
• Capex guidance. CWH has allocated a capex of MYR20m for FY25F, with MYR12m dedicated to upgrading and automating its inventory and warehousing systems to improve efficiency and maintain competitiveness. The remaining capex will be directed towards ESG initiatives, including securing necessary certifications and implementing in-house maintenance upgrades to prepare for the introduction of a carbon tax in 2026. We are maintaining CWH's current ESG score of 2.3 until further developments in sustainability efforts are disclosed.
• Forecasts and ratings. We revise our FY25-27F forecasts downward by 13%, 8%, and 7% after toning down our GPM assumptions, which were previously too optimistic. Consequently, our TP is adjusted to MYR0.57, based on an unchanged 8x FY25F P/E (in line with its mean) and incorporating a 14% ESG discount. Key upside risks include higher-than-expected sales volumes and better-than-expected margins.

Source: RHB Research - 30 Dec 2024