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Thursday, January 07, 2016

Chinwel: Are we too late for the party?

Background

Chin Well Holdings Bhd ('Chinwel') is involved in the production of screws, bolts, nuts, studs & washers. It was founded in 1989 while its Vietnam operation was started in 2005. Its main markets are Europe (60%), US (30%), Japan (5%) and South East Asia (5%).

Recent Financial Performance

Chinwel's quarterly revenue had been hovering around the RM120-130 million mark for the past 7 quarters. Last quarter, it managed to surge to RM140 million. Net profit surpassed the high recorded in Jun2015 & Jun2014 of RM12.5 million when it touched a high of RM18.2 million. Revenue increased due to stronger demand from local market & trading sales while bottom-line was boosted by forex gain.


Chart 1: Chinwel's last 10 quarterly results (Source: ShareInvestor)

Historical Performance

The last 10 years of financial performance shows that the group's revenue has been flattish in the past 5 years while bottom-line has been rather erratic. If MYR remains weak for the next few quarters, Chinwel's bottom-line may continue to rise.


Chart 2: Chinwel's last 10 yearly results (Source: ShareInvestor)

Financial Position

Chinwel's financial position as at 30/9/2015 is deemed healthy, with current ratio at 3.8X & gearing ratio at 0.3X. However, its inventory holding period is very high at 174 days. While the high inventory level is a matter of concern, we can take comfort that they are not likely to go obsolete.

Valuation

Chinwel (closed at RM2.31 yesterday) is now trading at a PE of 13.6X (based on last 4 quarters' EPS of 17 sen). Based on this PER, Chinwel is deemed fully valued.

Technical Outlook

Chinwel broke above its strong horizontal resistance at RM1.75 in early November 2015. What is more interesting is that the stock has broken above its 15-year triangle formation at the same time. While this call comes rather late - almost 2 months old after the breakout & 55-sen above the breakout point - the breakout of a 15-year formation may still have more upside. With the immediate target at RM2.60-2.80, I think there is still prospect for a decent gain in the near term for the stock.


Chart 3: Chinwel's weekly chart as at Jan 6, 2016 (Source: ShareInvestor)


Chart 4: Chinwel's monthly chart as at Jan 6, 2016 (Source: ShareInvestor) 

Conclusion

Based on bullish technical breakout, Chinwel could still be a good stock for a trading BUY. Its fair valuation & satisfactory financial performance could be supportive of the ongoing rally or at the very least cushion any down force when correction kicks in.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Chinwel.

2 comments:

lai said...

happy new year alex.

may i have your opinion on kienhing pls.

thanks

Alex Lu said...

Hi lai,

Sorry for the late response.

Keinhin's revenue and profits have been increasing steadily over the past few quarters. However if you look back to FYE April2012, you will notice Keinhin's revenue & profits were pretty impressive then. Thus, the group seems to be enjoying a cyclical bounce in its performance.

The stock was range-bound between RM0.30 & RM0.60 for the past 10 years. The breakout led to a sharp rise which is disproportionate to its improved financial performance. At the current price, the stock should be a SELL.