Kim Hin to withstand market downturn
KUCHING: Building materials manufacturer Kim Hin Industry Bhd’s (Kim Hin) earnings continued to be affected by the sluggish demand in the property market and stiff price competition of cheap tiles from neighbouring countries.
In a sector report by Affin Hwang Investment Bank Bhd (AffinHwang Capital), Kim Hin’s first nine months of 2018’s (9M18) revenue had dropped by 3.4 per cent year over year (y- o-y) as revenue from all of the group’s key markets – Malaysia, China, Australia and Vietnam – had fallen by one to 11 per cent y-o-y.
“This is partly due to lacklustre tile demand on the back of the weak property market, which we believe will continue in the medium term. We expect Kim Hin’s revenue to drop by 5.3 per cent y- o-y in 2018, while 2019-2020E revenue will see weak growth of 2 to 3 per cent per annum,” commented research house.
Additionally, there is also the issue of rising production costs from raw material prices as well as gas, as the natural gas average effective tariff was raised to RM32.69 per MMBtu in July 2018 and is scheduled to be raised again to RM32.92 per MMBtu in Jan 2019.
Labour costs will also be on the rise as the increase of minimum wages from RM1,050 to RM1,100 will start on January 2019.
Despite these headwinds and downturns in the group’s key markets, Affin Hwang Capital is confident that Kim Hin will be able to withstand current market conditions due to its strong cash position of RM32.6 million as at Sep 30, 2018, which is equivalent to RM0.23 per share.
“Nonetheless, we maintain our sells rating on the stock and a 12month target price of RM1.18, based on a 0.35 fold FY19E price book value,” said the research arm.
Potential upside risks to their call include better-than- expected demand, recovery in the property market and favourable foreign exchanged movement.