Fundamental Pick: CHINWEL

I have been monitoring Chinwel for a while as it has been a low profile counter with steady track record of growth and profit. Its main activities being the manufacture and exporter of fastener products (nuts and bolts, screw) with Europe as its main market contributing 58% to its total revenue. The company has done pretty well for financial year ending 2014 with net profit of RM35.8 million in FY2014, jumping 61.8% from RM22.1 million a year before. EPS has shown steady growth year by year.

Chinwel Profit & Loss

Chinwel Profit & Loss

 

The company has strong balance sheet with increased share holder fund year by year. Its debt ratio of 21.6% (123,158,000 / 571,156,000) and net gearing of 0.1 has shown that it has been operating in the decent leveraging to keep it going. Its long term liability is only 68.8% of its net profit which means it has not over relying on debts and should adverse conditions hit, the company is able to fulfill its debt commitments and at the same time having the capability to fund any future expansion as and when required.

Chinwel Balance Sheet

Chinwel Balance Sheet

Cash flow has been strong with cash from operating activities increased from RM53,864,000 to RM64,164,000, a 19% improvement, Its retained cash has also increased year by year with compounded growth of more than 100% over the 5 years period.  The positive cash flow has helped the company to pare down its borrowing and at the same time bringing more value to the shareholder with stronger retained profit that will be able to be re-invested to create greater value for the shareholders.

Chinwel Cash Flow

Chinwel Cash Flow

Is this counter a good buy? Well, it all depends on your criteria for good stock. Financial facts aside, these are a few considerations and concerns:

1) ROE is low: 12 months trailing ROE is only 9.58% which is lower than common acceptance of 12% ROE to be considered a good investment.

2) Net Profit Margin: 12 months NP Margin 9.84% again fell below the 15% mark. The bolts and nuts products are low profit margin products.. So, I think that boils down to how the company is going to keep the cost down, and improve efficiency.

3) P/E: 10.12% at the moment, not considered cheap but it is lower than the average sector PE of 17%.

4) Price/NAPS: 0.98 which means the counter is trading almost at its Net Asset Value.  Not as significant and it only tell that it is not really expensive as its net asset stood at higher value than share price.  For counters with good potential, the Price/NAPS could sometimes go higher to 1.5 or even higher.

In conclusion, the company has its niche, being one of the largest producer of fastener products. From its Annual Report, I could see that it is operating in a challenging environment with its utmost priority being the ability to obtain certification at the Europe end to get into supplying bolts and buts for construction industry, as well as the progress of its DIY segment. DIY is the trend and if it manages to tap into this market, it helps improve its bottom line with capability to grow sales to untapped market.

 Disclaimer: None of the strategies, stocks or information discussed or presented are financial or trading advice or recommendations. The author assumes no liability including for errors and omissions. Everything presented are the author’s ideas and opinions only.  The author may or may not at any time be holding securities discussed. Trade at your own risk.

 

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