Stock Review – CHINWEL (5007) (CHIN WELL HOLDING BERHAD) – 4

Bursa Malaysia - 5007

Bloomberg - CWH:MK
Yahoo - 5007 .kl
Webpage - http://www.chinwell.com.my/

Revenue :

CHINWEL revenue consists are from two segment as below.

1) Fastening Products

Manufacturing and trading of screws, nuts, bolts, steel bar and other fastening products.

2) Wire Products

Manufacturing of precision galvanised wire, annealing wire, bright wire, hard drawn wire, PVC wire, bent round bar and grill mesh

Pie chart below shows CHINWEL revenue distribution for financial year 2019.

From the pie chart above, CHINWEL main business focus on manufacturing of fastening products.

Bar chart above shows revenue and operating margin of CHIWEL from 2010 to 2019.

5 Years Annualise Growth of Revenue	7.00 %
10 Years Annualise Growth of Revenue	6.35 %

From the chart above year 2011 and year 2018 post the highest revenue growth 24 % and 23 % respectively. In 2011 CHINWEL had high revenue growth rate because of higher demand of the fasteners product in the EU market. While in 2018 there is increase of steel bar product in the local market.

The line chart above showed the operation margin for CHINWEL. In the period of 2010 -2019 the operating margin of CHINWEL ranges from 5.41 to 14.7 with the median of 10.62. CHINWEL operating margin is mainly affected by the raw material cost.

Nett Profit

Bar Chart below shows CHINWEL nett profit from 2010 – 2019.

5 Years Annualise Growth of Nett Profit	5.22 %
10 Years Annualise Growth of Nett Profit	63.01 %

The high 10 years annualise growth rate of nett profit is mainly because high growth rate of from 2010 to 2012 period. 5 years annualise growth rate of the company are more reasonable to use to predict the growth rate of the company.

There is a significant drop in nett profit in 2013, 57%, this is mainly due to the competition of the fasteners product globally which force CHINWEL to reduce the sale price. 2013 operating margin is 7.32 which is 3.05 lower than the median of 10.62.

Assets and Liabilities

From the chart above, CHINWEL assets increase over time while liabilities reduce over time. CHINWEL is able to increase the assets (cash, properties, plants and equipment, trade receivables) on the other hand reduce it liabilities (borrowings, trade payable).

Trade Receivables

Let compared trade receivable of CHINWEL against trade receivable past due every year.

From the comparison above, CHINWELL trade receivable increase over time, the trade receivable past due increase as well. Around 30 % to 40 % of trade receivables of CHINWEL are past due. If CHINWEL unable to collect back the trade receivables past due, they would be impaired and cost a loss in CHINWEL account.

Financial Ratio

There would be few financial ratios to be look at here:

1) Interest Coverage Ratio (Green Bar Chart)

2) Cash Ratio (Blue Line Chart)

3) Current Ratio (Red Line Chart)

1) Interest Coverage Ratio

Interest coverage ratio measure how capable the company pay off the existing debt. With an interest coverage ratio above one mean the earnings before interest & tax (EBIT) is able to pay of the full amount of the financial cost of the year.

CHINWEL had lowest interest coverage ratio which is 6.54 on 2010. In 2015 and 2017 the EBIT is almost 70 times the financial cost.

2) Cash Ratio

As cash is the most liquid assets of the company, cash ratio is use to determine company ability to pay off short term liabilities using cash. Cash ratio above one indicates that company able to settle all current liabilities using available cash.

CHINWEL cash ratio increase over time and reach a cash ratio above one in 2016. CHINWEL cash ratio show it able to pay off all short term debt using cash and in 2019 annual report show all CHINWEL borrowings are short term. In 2019 CHINWEL had RM 89,163,518 of borrowings and cash & equivalent of RM 124,216,804. CHINWEL borrowings in 2019, 62.73 % are in local currency, Ringgit Malaysia and 37.27 % in US Dollar.

Investors can have a piece of mind and do not worries about strengthening of USD against Ringgit Malaysia would increase the borrowings. This is because as of 30 June 2019 CHINWEL had cash in term of US Dollar is USD 35,734,608 and borrowing in term of US Dollar is USD 33,232,678. This would remove the currency risk.

3) Current Ratio

Current ratio measures ability of the company to pay off short term obligation (current liabilities). Current ratio above one means the company able to pay off the current liabilities with current asset.

CHINWEL had the current ratio above one hence it able to pay off it current liabilities with current asset.

Turnover in Days

Let look into three types of turn over as follow:

1) Inventory Turnover (Blue Line)

2) Trade Receivables Turnover (Red Line)

3) Trade Payable Turnover (Green Line)

1) Days Sales of Inventory

10 Years Days Sales of Inventory Median (days) – 189

CHINWEL on average took 189 days to sell their products. As we can see in 2013 the it took 219 days hence the CHINWEL had to reduce the operating profit margin to sell their products.

2) Trade Receivable Turnover (Days)

10 Years Trade Receivable Turnover (Days) – 91

On Average CHINWEL took 91 days to collect back the money from credit sales

3) Trade Payable Turnover (Days)

10 Years Trade Payable Turnover (Days) – 18

CHINWEL trade payable turnover is decrease year by year. This means that CHINWEL need to pay their suppliers on shorter credit term compare to the credit term given to the customer. CHINWEL might have cash flow problem if this is not manage properly. CHINWEL unable to get longer credit term from supplier might harm the business in long term.

Per Share Analysis

1)  Earnings per share (sen) (Blue Bar)

2) Dividend per share (sen) (Red Bar)

3) Net total assets per share (Green Line)

1) Earnings per share

CHINWEL earnings per share growth steadily except for the year 2011 – 2012 where the earning is increase growth is 400 % and 150 %. This growth mainly because of tariff ruling of European Union (EU) where EU imposed a five year anti-dumping duty up to 85 % on imports of iron and steel fasteners originating in China. This strong demand from EU has improve operating margin of for 2012.

2) Dividends per share

CHINWEL had pay dividend annually for the past 10 year. From 2014 onward CHINWEL has dividend payout ratio of around 40 %

3) Net total assets per share

CHINWEL net total assets per share have a linear growth rate.

Director’s Remuneration

Some company paid high remuneration to director despite low profit. Let see how much is CHINWEL director’s remuneration in comparison to staff fee and operating profit.

CHINWELL director’s remuneration average stands 10.53% of total salaries expense and about 6.58 % on average of the operating profit.

Summary of Stock Reviews

Summary of Industry Comparison