With a dominant position in the distribution of electrical products, Choo Chiang has benefitted from strong growth of demand for its products, with 2021 EPS growing 190% yoy.
Choo Chiang to achieve EPS growth of 13% yoy for 2022, driven by increased 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.
Initiate coverage with a BUY and target price of S$0.56, pegged to 12x 2022F mean PE.
Dominant position in distribution of electrical products with robust earnings growth
Choo Chiang Holdings 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 Choo Chiang Marketing (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 sold for HDB and private resale units rose 18% and 82% 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% yoy.
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 since fully recovered. Also, recently implemented cooling measures have diverted more liquidity into commercial properties.
As of 2021, we estimate the fair value of the properties at S$15m vs their carrying value of around S$13m.
Upon divestment of these properties, Choo Chiang could enjoy a capital gain of at least S$2m, representing around 20% of 2022 earnings with net proceeds of S$15m, roughly 20% of its current market cap.
Valuation/Recommendation
Initiate coverage with BUY and a target price of S$0.56, pegged to 12x 2022F PE (five-year mean PE).
We think current valuations of 8x 2022F PE for Choo Chiang and 2022 dividend yield of 6.6% are attractive, given the group’s dominant market share, strong EPS growth and huge net cash of around S$22m (around 30% of market cap).
Choo Chiang price chart
You can find the full report here
Excerpts from UOBKayHian report Oversea-Chinese Banking Corporation (SGX: O39) Oversea-Chinese Banking Corp (OCBC) delivered a near-record net profit of S$1,944m in 2Q24 (+14% yoy), supported by strong net trading income and lower credit costs. NPL formation was benign at S$108m. Loan-loss coverage improved 24ppt yoy and 9ppt qoq to 156%, the highest among the local
For the past 2 years, the US Federal Reserve hiked interest rates to the present 5.25% to 5.5%, which is the highest since 2007. The sharp increases, coupled with high inflation led to lower DPU for most REITs due to higher financing costs. With impending interest rate cut by the FED, REIT investors could breathe
Excerpts from Maybank report Mapletree Pan Asia Commercial Trust (SGX: N2IU) Mapletree Pan Asia Commercial Trust (MPACT) 1Q25 DPU of SGD2.09cts fell 8.7% QoQ and -4.1% YoY, in line with our est. Forex headwinds and pockets of weakness in overseas markets offset growing contribution from Singapore assets. Reversion picked up in 1Q25 to +5.2% due to
The REIT sector have come under pressure this year and may face further downside when the US economy falls into a recession next year. We could see a more prolonged market correction this year similar to the correctio in the first week of August. When the market actually crashes in 2025 and 2026, it will