CHINWEL: Company Posts Strong Earnings Amid Cost Controls, Analyst Upgrades Rating
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A leading building materials company has commenced its new financial year with a robust performance, reporting adjusted core earnings of RM4.7 million for the first quarter of FY26. This performance aligns with both the analyst’s and consensus full-year expectations, leading TA Securities to upgrade its recommendation for the stock from HOLD to BUY.
Financial Performance Highlights
On a year-on-year basis, the company’s core net profit saw a significant surge of 43.1%, demonstrating strong operational efficiency despite a 7.6% decline in revenue. The revenue decrease was primarily attributed to softer sales volume (-19.8%) and lower average selling prices (-7.9%) within the fastener products segment.
Quarter-on-quarter, the company showcased a sharp turnaround, with revenue increasing by 16.2%. Adjusted net profit rebounded strongly, swinging from a RM1.24 million loss in the preceding quarter to a positive RM4.7 million in core net earnings. This remarkable improvement was fueled by stronger average selling prices and higher sales volumes across both the fastener and wire product segments.
Key Performance Drivers and Challenges
The year-on-year growth in core net profit was largely driven by robust contributions from the wiring products segment, which saw a 33.3% increase in sales volume. This was further bolstered by stringent cost controls, including a 61.0% reduction in administrative expenses and a 19.3% decrease in selling and distribution costs.
Despite the strong earnings, management remains cautious regarding broader industry developments. Geopolitical tensions, US-China trade frictions, the impending carbon tax in the European Union (scheduled for early 2026), and global recession risks continue to dampen global fastener demand. While a 95% US tariff on Chinese fasteners presents export diversification opportunities, these are partially offset by a 50% duty imposed on the group’s own fasteners and wire products under Section 232.
Future Outlook and Strategic Initiatives
Domestically, the anticipated restart of major construction projects in Malaysia is expected to provide a supportive backdrop for sales in related industries. Globally, the company plans to prioritize exports of wire and downstream products to capitalize on trade diversion arising from US tariffs on Chinese fasteners. Furthermore, it is actively exploring DIY market opportunities in Europe and North America, where customers are seeking alternative suppliers outside of China.
TA Securities has upgraded its recommendation for the company to BUY. The investment bank has set a target price of RM0.87, which represents an attractive upside potential of 35.5% from the last traded price of RM0.66, based on a target P/E of 11x CY26 EPS, signaling confidence in the company’s future performance.
