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PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 22 Oct 2021, 11:22 AM

 

Hextar Global Berhad - Attains Shareholder Nod

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Hextar Global announced overnight that it has obtained shareholder approval for the acquisition of the Nobel Group of Companies (Nobel), and will proceed to complete its second major acquisition for the year. Costing RM105m, the addition of Nobel widens its footprint in the specialty chemicals sector. The acquisition will come with an annual RM14m profit guarantee over the next 3 years. We view this earnings-accretive deal positively, pricing the acquisition at only at 7.5x earnings multiple. We lift FY21/FY22/FY23 estimates by +3.5%/+11.9%%/+10.9%, incorporating contributions from the newly-acquired Nobel Group, net of funding costs. Our target price is raised to RM1.42 as a result, pegged to a 25x multiple to FY22 earnings. We deem the higher multiple as fair given the robust earnings growth from its acquisition-related activities (>50%), underpinned by its steadily-growing organic earnings from its position as the market leader in the domestic agrochemical space. Our Outperform call is affirmed.

  • To recap, the Nobel Group of Companies manufactures and supplies chemical derivatives, coating and related products. It provides high performance custom-made anti-tack rubber lubricant and coatings for the rubber industry. Its customers include some of the world’s largest rubber glove manufacturers. Two companies within the Group will be acquired – Nobel Synthetic Polymer Sdn Bhd and Nobel Scientific Sdn Bhd. Funding will be via a combination of internally-generated funds (RM50m) and borrowings (RM55m). While the Group’s gearing will rise to 1.0x pursuant to the acquisitions of Chempro and Nobel, we are not overly troubled given its strong operational cash flows.
  • Corporate exercises. The Group has made 3 earnings-accretive acquisitions since the start of this year – the Chempro Group of Companies for RM138m (cumulative 3-year profit guarantee of RM39m), the Nobel Group of Companies for RM105m (cumulative 3-year profit guarantee of RM42m) and a 49%-interest in Enra Kimia Sdn Bhd for RM24.5m. The Group has now diversified into the hygiene sector, rubber glove as well as oil and gas industries in addition to its current agriculture based exposure, though all still within the chemical-related space. We are positive on the deals as they reduce the potential cyclicality in the Group’s earnings profile, which will incidentally be bumped up ~40%-50% (net of funding costs). Separately, the Group has also entered into a consortium agreement with Arcadia Acres and Ihsan Equity for the application a digital banking license, though this is a longshot for now.

Source: PublicInvest Research - 24 Sept 2021

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Labels: HEXTAR

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Chart Stock Name Last Change Volume 
HEXTAR 1.42 -0.01 (0.70%) 2,651,300 

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