Hextar’s expansions continue with Tufbond

by FAYYADH JAAFAR / pic source: hextarglobal.com

HEXTAR Global Bhd saw little uplift to its share prices despite research firms expecting the group to see strong growth prospects in the coming years, driven by its expansion into the industrial chemical space.

Hextar’s share price fell 3% to RM1.64 from RM1.69 in the previous session.

The company continues its diversification into new markets with the latest acquisition of Tufbond Technologies Sdn Bhd.

“We keep our earnings estimates unchanged pending completion of the deal, even as the acquisition comes with an annual RM2 million net profit guarantees over the next three years,” PublicInvest Research analyst Ching Weng Jin wrote in a note recently.

The research outfit lifted its target price (TP) for Hextar to RM1.71 (RM1.42 previously) on a slightly higher 30 times multiple to an unchanged FY22 earnings.

“We deem the higher multiple as f air given to the robust earnings growth from its acquisition-related activities (>50%), underpinned by its steadily-growing organic earnings from market leadership in the domestic agrochemical space, and the management’s ability in continuously enhancing shareholder value,” Ching added.

The ‘Outperform’ call is retained for the longer term despite the limited near-term upside to current TP which has not accounted for contributions from its more recent acquisitions.

The Tufbond deal is Hextar’s latest addition to a slew of acquisitions including Chempro Group of Cos (CGC), Nobel Group of Cos and Enra Kimia Sdn Bhd (EKSB).

The company’s diversified portfolio of businesses now includes the manufacturing of specialty chemicals, catalysts and odorants, as well as providing ancillary services for these products.

Hextar has a licence agreement with Petronas Group of Cos allowing it to conduct business in the country.

Hextar’s acquisition of CGC in March 2021 for RM138 million comes with a cumulative three-year profit guarantee of RM39 million.

The group has a track record of operating in Singapore, Thailand, Indonesia, Brunei, Hong Kong, Taiwan and China, in addition to Malaysia, and provides niche specialty chemical products for cleaning, hygiene and the food industry.

Nobel was acquired for RM105 million and comes with a cumulative three-year profit guarantees of RM42 million in July 2021, pricing the transaction at 7.5 times earnings multiple.

Nobel manufactures and supplies chemical derivatives, coatings and related products. It provides high-performance, custom-made anti-tack rubber lubricants and coatings for the rubber industry.

In July, Hextar paid RM24.5 million for a 45% equity interest in EKSB which together with its subsidiaries, supply specialty chemicals, catalysts and odorants as well as provide ancillary services for these products to the oil and gas and petrochemical industries.

EKSB operates in Malaysia, Australia and New Zealand, and is licenced to conduct business with the Petronas.

The effect of the latest transaction will increase Hextar’s gearing level to 1.2 time but with financing facilities recently raised for the various acquisitions, it is expected to cost about RM6 million per annum in interest servicing costs.

“We are not overly perturbed given the strong operational cashflows of the expanded Hextar group,” Ching concludes.