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 strong growth of demand for its products, with 2021 EPS growing 190%
yoy. We expect 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. We
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 (Choo Chiang) 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 thirdparty 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, recentlyimplemented 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.
• 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).