CHOO CHIANG HOLDINGS LTD. (SGX:42E)
Choo Chiang Holdings - Rides On Strong Home Sales And Copper Price
- Choo Chiang Holdings (SGX:42E) distributes low-voltage electrical products and accessories that are used for indoor installations in residential and commercial properties. It stocks > 40,000 line items under house brands CCM and CRM, and 30 third-party brands.
- Choo Chiang's customers are mainly renovation contractors. The customer base is fragmented and about half are cash sales. Only about 15% of revenue is derived from project orders. Margins for project orders are lower due to competitive bidding and credit costs, made worse by construction delays due to manpower crunch.
- Mobility restrictions in 2Q last year hit 1H revenue by 33% and net profit by 67%. Sales had bounced back in 2H20, with revenue just 2.5% lower y-o-y and net profit down 13% y-o-y.
Near term positive trends for Choo Chiang
- In the near term, there are two positive trends working in its favour:
- surge in home sales; and
- higher copper prices.
An impetus to earnings growth is the strong home sales.
- Total units sold for HDB resale flats and private homes were 54.3% y-o-y higher in 1Q21 to 15,681 units (FY20: +6.5%). Completion of a sale transaction typically takes 4 to 6 months, after which home renovation works would commence. Choo Chiang’s sales would lag home sales by 9 to 12 months. We estimate revenue could reach S$70m in FY21E and FY22E.
- Choo Chiang outsource the production of some line items under house brands CCM and CRM. Margins for the house brands are 20-25% higher than 3rd party brands. Through raising the share of house-branded products over the years, gross margin has from 27.5% in FY16 to 29.3% in FY20.
Surge in Copper prices likely to lift sales
- Copper-based products (such as cables) account for ~20% of sales, but the surge in copper prices (YTD: +22%) is likely to lift this to 25%. We believe this could add 3.0ppt to gross margin to about 32%. Copper price has risen to US$4.5/pound, the level last seen in Feb 2011. Choo Chiang does not take position in copper futures.
Net cash of S$13.5m
- Choo Chiang's balance sheet has net cash of S$13.5m and investment properties worth S$13.2m. These account for 56% of net assets. ROE was 6.2% in FY20 (10.8% in FY19 pre-COVID), despite the cash on hand and low-yielding investment properties. ROIC is strong at 8.2% for FY20 (FY19: 15.1%) with zero debt.
- Choo Chiang offers 3.8% dividend yield.
- See
- Choo Chiang's nearest listed comparable company is Tai Sin Electric (SGX:500), which manufactures cables and distributes electrical and control products in Asia. See peer comparison table in report attached below.
Lam Wang Kwan
SAC Capital Research
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Peggy Mak
SAC Capital
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https://www.saccapital.com.sg/
2021-05-04
SGX Stock
Analyst Report
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SAME
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