Founded in 1989, Chin Well Holdings Bhd (Chin Well) is now among the world’s largest manufacturers of high-quality carbon steel fasteners. Presently, as at 22 December 2018, Chin Well is worth RM 470.2 million in market capitalization, a 57.8% increase from RM 291.6 million in 2013.

In this article, I’ll revisit its fundamentals, bring an update on its latest financial results, and assess its investment potential with a handful of valuation tools. As such, here are 5 things to know about Chin Well before you invest.


#1: The Business

Currently, Chin Well operates from 3 manufacturing facilities where 2 of them are based in Penang and the other is located in Vietnam. Combined, they have a total production capacity of 18,800 metric tonnes (MT) a month, supplying in excess of 3,000 types of fastener products such as screws, nuts, and bolts. Chin Well derives 35% of its total sales from local customers and the remaining 65% from overseas market mainly in European nations and Asia in 2018.

#2: Management

Benua Handal Sdn Bhd is the largest shareholder of Chin Well with as much as 55.24% direct shareholdings of the company. Tsai Yung Chuan emerges as the ultimate largest shareholder of Chin Well through his interest in Benua Handal Sdn Bhd. Currently, Tsai Yung Chuan who founded Chin Well back in 1989 now sits in the board as its Managing Director.

Tsai’s wife, Chang Hsiu-Hsiang is appointed as its Executive Director. Tsai Cheng Tsun, Tsai Chia Ling, Tsai Chia Wen who are son and daughters to both Tsai and Chang are holding key management positions within Chin Well. Hence, the Tsai Family remains influential in both the management and the board of Chin Well.

#3: Financials

Profitability:
Over the last 5 years, Chin Well has achieved slow but stable growth in sales. It has increased from RM 461.9 million in 2013 to RM 591.3 million in 2018. From which, it has brought in higher shareholders’ earnings, up from RM 22.2 million in 2013 to RM 55.9 million in 2018. During the period, Chin Well has achieved a 5-Year Return on Equity (ROE) average of 10.23% per year. It means, Chin Well has generated RM 10.23 in earnings from every RM 100 in shareholders’ equity per annum from 2014 to 2018.

Source: Chin Well’s Annual Reports

Cash Flows:

For the past 5 years, Chin Well has generated RM 260.7 million in positive cash flows from operations. Out of which, it has expended RM 55.2 million in capital expenditures and had paid out RM 93.4 million in dividends to its shareholders. As a result, Chin Well had grown its cash reserves from RM 30.7 million in 2013 to RM 116.9 million in 2018.

Source: Chin Well’s Annual Reports

Balance Sheet:

As at 30 September 2018, Chin Well does not have long-term borrowings. Chin Well has a gearing ratio of 1.44%, a current ratio of 4.72, and a cash balance of RM 115.9 million.

#4: Growth Prospects

Moving forward, Chin Well has revealed that it expects to benefit from the U.S. – China Trade War as the U.S. government has imposed a tariff on imports from China such as steel products. Chin Well expects the exports of its bulk fasteners to the United States to increase in financial year (FY) 2019.

In addition, it has embarked on a few plans to grow its business in the future.

Automated Warehouse:  

Chin Well has commenced its construction of its automated warehouse in Shah Alam and expects its completion in FY 2019. It intends to set up a new business segment by providing an one-stop warehousing services for the near future.

Upgrading of Galvanised Wire Line:

Chin Well is expecting its upgrading of galvanised wire line to be completed by FY 2019 and believes that its wire division would contribute positively over the long-term.


#5: Valuation

Based on its current stock price of RM 1.60,

(1) P/E Ratio:

For the last 12 months, Chin Well has made RM 629.7 million in revenues. Out of which, it has generated RM 59.8 million in shareholders’ earnings or a total of 20.19 sen in earnings per share (EPS). Hence, its current P/E Ratio is 7.92, a bit lower than its 5-Year P/E Ratio of 9.62.

Figures in RM ‘000 unless stated otherwise

PeriodQ2 2018Q3 2018Q4 2018Q1 2019Total
Revenue160,532142,778150,045176,336629,691
Earnings15,3558,55817,99817,93259,843
EPS (Sen)5.142.886.076.1020.19

Key Statistics (22 December 2018):

5-Year P/E Ratio Range: 6.99 – 11.83

5-Year P/E Ratio Average: 9.62

Current P/E Ratio: 7.92

(2) P/B Ratio

As at 30 September 2018, Chin Well has net assets a share of RM 1.87. Thus, its current P/B Ratio is 0.86, below its 5-Year P/B Ratio Average of 0.98.

Key Statistics (22 December 2018):

5-Year P/E Ratio Range: 0.89 – 1.14

5-Year P/E Ratio Average: 0.98

Current P/E Ratio: 0.86

(3) Dividend Yields

In 2018, Chin Well has paid out 8 sen in dividends per share (DPS). Thus, if Chin Well is able to keep its dividend payouts at 8 sen per annum, its gross dividend yield is 5.00%, above its 5-Year Average of 4.33% per annum.

Key Statistics (22 December 2018):

5-Year Dividend Yield Range: 3.44% – 5.74%

5-Year Dividend Yield Average: 4.33%

Current Dividend Yield: 5.00%

VIA’s Verdict

Evidently, Chin Well has delivered stable financial results over the past 5 years with slow but steady increase in sales, profits, cash balances, and as well as its dividend payments. Presently, its management is optimistic that Chin Well will be one of the beneficiaries of the U.S.- China Trade War due to tariffs imposed on imported goods from China.

So, should I buy Chin Well? Well, what then are your answers for:

  1. Are you okay with Chin Well’s Fundamentals & Plans for Growth?
  2. Are you happy with a Dividend Yield of 5% per annum?
  3. What is your plan if Chin Well drops in Stock Prices in the future?

1 COMMENT

LEAVE A REPLY

Please enter your comment!
Please enter your name here