This article first appeared in The Edge Malaysia Weekly on April 17, 2023 - April 23, 2023
Since Chin Hin Group Bhd made its debut on Bursa Malaysia seven years ago, the Chiau family has been busy with corporate exercises, including the injection of its property development business into Boon Koon Group, which is now known as Chin Hin Group Property Bhd, as well as purchases of stakes in a few listed companies.
The Chiau family controls 58.7% of Chin Hin, which has 59.8% equity interest in Chin Hin Group Property.
Two latest deals in the pipeline are initial public offering (IPO) exercises that are expected to take place in the fourth quarter of 2024 (4Q2024) or 1Q2025, according to Chin Hin managing director Chiau Haw Choon.
The Chiau family intends to list its construction arms, Kayangan Kemas Sdn Bhd and Makna Setia Sdn Bhd, both of which are housed under Chin Hin Group Property.
The company is also going to float its interior fit out business that is currently owned by Signature International Bhd, in which Chin Hin acquired a 32% stake in 2021.
“Both [Kayangan Kemas and Makna Setia] will be listed together under a new SPV [special purpose vehicle] called Chin Hin Construction Engineering,” Haw Choon tells The Edge in an interview.
“We intended to use this year’s results for submission. I think we have enough [of an] order book and profit track record,” he says, adding that the IPO is expected to fetch a market capitalisation of RM500 million on the Main Market.
Haw Choon reveals that the construction business currently has an order book of about RM1.3 billion, with budgeted revenue of RM656 million and RM69.6 million in net profit this year.
“When we venture into construction, we also want to do something different, we don’t want to be a typical residential contractor,” he says.
Therefore, its construction arm is already involved in hospitals and highway construction as well as jobs in the semiconductor industry.
“Basically venturing into infrastructure works and government jobs, and the only residential work that we are doing is in-house property development,” he says.
Unlocking value of signature investment
In the other IPO, Chin Hin wants to spin off the newly acquired interior fit out business in Signature.
After Chin Hin emerged as a substantial shareholder, in a span of roughly 13 months, Signature bought a 51% stake in Space Alliance Contracts Sdn Bhd for RM14.61 million cash. Meanwhile, it is in the process of acquiring Areal Interior Solutions Pte Ltd and a 75% stake in Corten Interior Solution Pte Ltd in Singapore, as well as Zig Zag Builders (M) Sdn Bhd.
Signature will be spending RM185 million in total for its year-long acquisition trail. It is paying S$47.8 million (RM158.1 million) cash for Areal and Corten, plus RM13.05 million for Zig Zag, an interior fit out player that serves the semiconductor industry. The asset acquisitions in Singapore will be funded by private placement and bank borrowings.
Haw Choon says Signature will only need to pay RM2 million currently to take over Zig Zag, as the remaining RM11 million will only be paid upon the company achieving the vendor’s profit guarantee of RM15 million in 2023 and 2024.
“By [that] time, we would have already listed this company (Zig Zag) with Space Alliance,” he says.
The fit out business will be listed via an SPV, which consists of the two companies. “We are targeting RM20 million profit this year and RM30 million next year. We will be looking at a double-digit price-earnings ratio for [the] listing,” he says.
Haw Choon says the combined interior fit out entity is forecast to achieve revenue of RM250 million this year, as it is the country’s largest fit out construction company.
“By combining two companies together, we are actually creating a business model, [being] the only fit-out company that covers almost all sectors, residential, commercial, hospitality and semiconductor,” he says.
Haw Choon says the enlarged interior fit out entity will be synergistic with Signature, by leveraging the latter’s new RM30 million facility that features automation production.
Cash pile nearly halved
Notably, Signature’s cash pile shrank to RM22.69 million as at end-2022 compared with RM40.99 million as at end-June 2021, although it has not declared any dividends over the past three years.
Commenting on the lower cash balance, Chiau says the money was worth spending as the company was expanding its horizons.
He says given that one of the biggest costs of a fit out company is carpentry work, Signature has invested RM30 million in IR 4.0 — a programme to automate carpentry works to improve efficiency.
“I joked with KC [Signature co-founder Tan Kee Choong], who stays with us as adviser, ‘Within two years, we spent all your savings’. It is true, because we expanded and grew.
“But now, we will stop and we will not do any more acquisition [in Signature]. We will wait for the Singapore operations to contribute earnings first, before we do more exercises,” he says.
In fact, Haw Choon hints that Fiamma Holdings Bhd will be the next vehicle for fresh corporate exercises. “We just finalised one corporate exercise, and we plan to make an announcement within a month. So far, Fiamma’s balance sheet is okay. But no, we are not buying a company. When we make the announcement, you will see there is a synergy to Fiamma’s business and also to our existing businesses,” he elaborates. “Fiamma still has room to grow, we will form a distribution partnership to venture into a new sector.”
“For Signature, we expect the group to make over RM50 million profit next year, of which RM30 million would be from Singapore operations. We also have our fit out business, which we plan to list on the ACE Market. With such earnings visibility, I think our private placement is justified,” he adds.
Signature recently proposed a 10% private placement by issuing up to 57.97 million shares at RM1.08 each (compared with last Friday’s closing price of RM1.24), raising RM62.61 million to partly fund the acquisition of a 75% stake in Corten and 100% interest in Areal.
While the quantum of synergistic effects within the Chin Hin group of companies remains to be seen, the construction and interior fit out businesses’ spin-off into two SPVs would likely give rise to divestment gains, evocative of the sale of a 19.34% stake in Solarvest Holdings Bhd to the Chiau family for RM103.28 million cash. And that divestment came in handy to boost Chin Hin’s earnings and cash coffers.
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