CHINWEL: Earnings Exceed Expectations on Cost Controls; Target Price Raised
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
An investment bank research report highlights a strong financial rebound for an investment holdings company involved in the manufacturing and trading of carbon steel fastening and wire products. The company successfully returned to profitability in 1QFY26, recording a net profit of RM5.1 million. This marks a significant turnaround from a net loss of RM4.6 million in 1QFY25 and a loss after tax of RM2.9 million in 4QFY25. The positive results substantially exceeded the investment bank’s expectations, representing 45.3% of their full-year estimates.
Performance Drivers
The impressive return to profitability was primarily attributed to enhanced profit margins, particularly from the Fastener Division operations in Vietnam, and a reduced provision for slow-moving inventory. Revenue for 1QFY26 saw a notable increase of 16.2% quarter-on-quarter, reaching RM97.9 million. This growth was driven by improved contributions from both the Fastener division (up 18.4% QoQ) and the Wire Products division (up 12.1% QoQ).
Demand from both local and export markets showed improvement, contributing to the revenue increase. Despite a strengthening Ringgit, the average selling price (ASP) stabilized, indicating a healthier market environment. Effective cost control measures, coupled with a smaller foreign exchange loss, further bolstered the company’s profitability.
Future Outlook and Challenges
In light of the strong performance and improved outlook, the investment bank has raised its FY26-28F earnings estimates by an average of 20.5%. This revision reflects an expectation of sustained better profit margins, driven by anticipated ASP stabilization and ongoing cost efficiency initiatives. Consequently, the target price has been increased to RM0.60, up from the previous RM0.41. Following a significant 48% share price decline since a downgrade in December 2023, the investment bank perceives limited downside, upgrading its call from “Underperform” to “Neutral”.
However, the report acknowledges that the group’s outlook remains clouded by global uncertainties, including geopolitical conflicts, escalating US-China trade tensions, and the persistent US tariff pressure. Despite these challenges, potential opportunities exist; the average effective US tariff rates are now lower than initially announced, and the current US tariff structure (with 85% on China and 50% elsewhere for steel and aluminium) could divert North American orders to the company, enhancing its competitiveness. Domestically, the anticipated commencement of major construction projects is expected to generate increased demand from related industries, providing a positive impetus.
