by MARK RAO/ pic by TMR FILE

INVESTORS could be using Chin Hin Group Bhd as a proxy to Solarvest Holdings Bhd’s IPO — thus driving the company’s shares to a 17-month high.

Public Investment Bank Bhd head of research Ching Weng Jin said investors could be buying into Chin Hin ahead of the listing of its 45%-owned Solarvest on Bursa Malaysia’s ACE market next week.

“When you look at the timing of the rally, the possibility is that investors are buying into Chin Hin as a proxy trade to Solarvest, which is to remain a 33.6%-owned associate company of Chin Hin post-listing,” he told The Malaysian Reserve (TMR).

Solarvest, meanwhile, is in a good position to leverage on the government-led goal to increase Malaysia’s renewable energy mix to 20% (by 2025). This will provide an added earnings boost, he said.

Supported by attractive valuations, Chin Hin could see further upside if its financials come in strong. The building materials distributor and ready-mix concrete supplier is also understood to be in talks with customers on possible contracts, Ching added.

Public Investment Bank has an ‘Outperform’ call for the company with an unchanged target price of 94 sen — representing a potential 5% upside from the company’s last closing price of 89.5 sen yesterday.

The company’s share price has gained 21.2% year-to-date.

The rally coincided with Solarvest’s announcement last week stating the public portion of its IPO was oversubscribed by 35.27 times.

Solarvest, an engineering, procurement, construction and commissioning service provider in Malaysia’s solar photovoltaic industry, is due to raise RM34.59 million in proceeds from its public issue of 98.83 million shares at 35 sen a piece.

The majority or 55.5% of the proceeds (RM19.19 million) will be used to fund the company’s working capital, while the remainder will be utilised for business expansion, capital expenditure, repaying bank borrowings and to cover listing expenses.

Chin Hin will remain a major shareholder in Solarvest post-IPO with a 33.6% shareholding, down from 45% shareholding now.

Solarvest, which brought in a net profit of RM11.12 million and revenue of RM112.2 million for its financial year ended March 31, 2019, is slated to list on the ACE market on Nov 26.

A local industry analyst said the Solarvest IPO is currently a hot topic in the market, especially after it came in highly oversubscribed.

“I suspect investors are buying into Chin Hin to gain indirect access to Solarvest, especially as the building material business is not showing any signs of recovery,” the analyst, who asked to remain anonymous, told TMR.

The analyst said the upside for Chin Hin may be limited as the company’s valuation is expensive, with its price-earnings ratio coming in at about 20 times.

“How the stock performs will depend on its financial results due to be announced sometime next week.”

For the first half of 2019 (1H19), Chin Hin’s net profit rose 14.8% year-on-year (YoY) to RM9.55 million, supported by higher contributions from autoclaved aerated concrete (AAC) and precast concrete manufacturing, and fire-rated and wooden door manufacturing.

Higher contribution from Solarvest also helped profitability for the half-year period.

Turnover for 1H19 dropped 10.4% YoY on weaker revenue from the distribution of building materials and logistics services, the ready-mixed concrete sector, the wire mesh manufacturing business and the modular building solutions segment.

Chin Hin is also striving to reduce its gearing level via the disposal of non-core assets to its major shareholders. This will entail the sale of RM76.45 million worth of property assets to raise cash to repay bank loans and finance working capital.

The company expects to recognise a one-off net gain of RM12.36 million, as well as RM180,000 per annum in total net savings, from the disposals which are expected to be completed by 1H20.