Choo Chiang Holdings - UOB Kay Hian 2022-04-28: Market Leader Set To Benefit From Strong Growth In The Construction Sector


Choo Chiang Holdings - Market Leader Set To Benefit From Strong Growth In The Construction Sector

  • With a dominant position in the distribution of electrical products, Choo Chiang has benefitted from the strong growth in demand for its products, with 2021 EPS growing 190% y-o-y.
  • We expect Choo Chiang to achieve EPS growth of 13% y-o-y for 2022, driven by higher sales of its own brand products and tie-ups with contractors for better order visibility. Also, divestment of its existing investment properties could unlock value.

Dominant position in distribution of electrical products with robust earnings growth.

  • Choo Chiang Holdings (SGX:42E) has established sturdy relationships with building contractors, renovation contractors and interior designers. Today, it has a 60% market share in Singapore, where it operates 10 retail branches and retails over 30 third-party brands along with its own proprietary brands CCM and CRM.
  • As the construction sector recovers, Choo Chiang is well-positioned to benefit from the increase in sales of electrical products. Total units of Housing and Development Board (HDB) and private resale units sold rose 18% and 82% respectively in 2021, and we expect renovation works to be Choo Chiang’s key growth driver. For 2022, we expect Choo Chiang’s EPS to grow 13% y-o-y.

Renewed focus on better-margin proprietary products and relationships with contractors.

  • Choo Chiang targets to increase contributions from its electrical main contractors and its proprietary brands. The group’s current overall gross margin is 29.7%. With CCM and CRM contributing 42-45% of its revenue and commanding around 25% higher gross margins as compared with third-party brands, increasing sales from both brands would boost both Choo Chiang’s brand and overall margins.
  • In addition, Choo Chiang aims to increase market penetration with electrical main contractors, which contributed roughly 12% of 2021 revenue. Having stronger relationships with electrical main contractors would bolster earnings quality, order visibility and market demand for the group’s products.

Divestment of investment properties could unlock deep value.

  • Choo Chiang owns 12 investment properties whose occupancy rates have market cap.

Delays in construction to fuel short-term demand.

  • HDB turn, for electrical products and accessories. Suppliers like Choo Chiang will benefit.

Beneficiary of rising number of BTO launches, which will drive longer-term demand for electrical products.

  • The HDB plans to launch up to 23,000 flats per year in 2022-23, a significant increase from the 48,509 flats launched in the last three years (16,170 flats per year). As HDB housing forms a significant part of Choo Chiang’s demand, the increase in BTO supply would help support and boost Choo Chiang’s revenue moving forward.

Choo Chiang - Earnings forecast & recommendation

Llelleythan Tan UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-04-28
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