KUALA LUMPUR: Chin Hin Group Bhd will continue to pursue mergers and acquisitions (M&As) as it builds towards becoming a diversified conglomerate.
The group, said Chin Hin group managing director Chiau Haw Choon, (pic) is in expansion mode and will remain on the lookout for suitable acquisition targets.
“We are aiming to transform Chin Hin into a diversified conglomerate, instead of a company that is focusing on one particular business.
“Mergers and acquisitions shall continue to remain as one of our growth methods in the next few years. We believe in working together with our acquisition targets and leveraging on their network and expertise to add value to our current business.
“The acquisition target will remain as the major shareholder of the company and stay to grow the business with us, ” Chiau told StarBiz.
However, he emphasised that there must be synergy between the two companies, adding that its acquisitions will still be within the industry that Chin Hin is operating in so that the group will be able to leverage its stake to expand its current services and offerings.
The group’s main business is in the building materials segment. It also has dealings in solar energy through its 27.21% stake (as at July 30,2020) in Solarvest Holdings Bhd.
Chin Hin also expanded into property development and the manufacturing of commercial vehicles with the proposed purchase of a 51.5% stake and 37.6 million warrants in Chin Hin Group Property (CHGP) for RM88.9mil last December.
Last week, it acquired a 31.2% stake in Signature International Bhd for RM93.6mil.
“The acquisition of Signature International represents an opportunity for us to venture into the business-to-consumer (B2C) segment, as well as expand our product range from building materials into quality kitchen, home and living solutions.
“We have been in the business-to-business segment for decades. It is time to venture into a new segment that can potentially provide us with a better margin and earnings visibility.
“Ultimately, our goal is to transform Signature International’s flagship brand, Signature Kitchen, into a household name for home and living solutions. We are fortifying our efforts in digital marketing and e-commerce so that the B2C contribution in Signature International can rise up to at least 50% of its revenue, ” said Chiau.
Following this, Chiau said its next acquisitions will complement Chin Hin’s aim of growing big in the home and living space.
In a report, PublicInvest Research noted that Chin Hin and Signature International will be able to tap on each other’s respective strengths for future growth given that both companies operate in the construction and property development industry.
While the acquisition of Signature International appears to be expensive based on prospective earnings, the research house said the deal will make a lot of financial sense should Signature International be able to capture its past earnings achievements.
“As at Dec 31,2020, Chin Hin has cash holdings of RM49.9mil and a net gearing ratio of 0.81 times, the latter mostly short-term and trade related, which gives it comfortable room to debt-finance this acquisition, ” said PublicInvest.
Chiau added that a higher than normal gearing ratio is inevitable as it is on expansion mode.
“Having said that, we will be mindful to keep it at manageable levels.”
The diversification bodes well for Chin Hin as Chiau remarked that the market remains challenging for the construction and property industry, which will affect demand for building materials.
However, with the stabilisation of the pandemic, he expects more sectors to open up and for the government to spend on mega projects to rejuvenate the economy.
Nonetheless, its recent venture into B2C will help the group diversify its income streams moving forward and reduce its dependency on one sector.
“The market is expected to recover gradually from the second half of 2021 and we are getting ready to capture the rising opportunities, ” he said.
PublicInvest kept its earnings estimates for Chin Hin as well as its target price on the stock at RM1.52 pending full completion of the CHGP and Signature International deals.
However, it noted that valuations could rise to RM2.10 with the combined earnings of both entities.