Affin Hwang retains sell on Kim Hin, TP at RM1.18

KUALA LUMPUR: Affin Hwang Capital Research is retaining its sell call on Kim Hin Industry Bhd with an unchanged target price  of RM1.18 based on 0.35 times FY19 price-to-book value.

It said on Friday Kim Hin, which manufactures and sells floor and wall tiles, reported its earnings continue to be adversely affected by sluggish tile demand from the weak property market, stiff price competition and influx of cheap tiles from neighbouring countries. 

“The rising cost of production from higher energy and raw material costs further weigh on its profit margin. 

“Given the current market condition, Kim Hin is focusing on improving its working capital management and maintaining its net cash position,” it said.

Affin Hwang Research said Kim Hin’s 9M18 revenue dropped by 3.4% on-year as revenue from all of its markets – Malaysia, China, Australia and Vietnam – fell by 1-11% on-year. 

It said this was partly due to lacklustre tile demand on the back of the weak property market, which it believes will continue in the medium term. 

“We expect Kim Hin’s revenue to drop by 5.3% on-year in 2018, while 2019-2020E revenue will see weak growth of 2%-3% per annum,” it said. 

The research house understands that the cost of production is rising. The natural gas average effective tariff was raised to RM32.69/MMBtu in July 2018 and is scheduled to be revised upward to RM32.92/MMBtu in January 2019. 

The increase in minimum wage from RM1,050 to RM1,100 starting January 2019 and rising raw material prices will increase production costs further. 

“We believe Kim Hin is likely to withstand the current downturn in the industry. It had a net cash position of RM32.6mil as at Sept 30, 2018, equivalent to 23 sen a share. 

“Its inventory and receivable turnover days had improved to 220 and 80 days repectively, compared to end-2017,” it said.