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PublicInvest Research

Author: PublicInvest   |   Latest post: Tue, 10 Dec 2019, 9:35 AM

 

HEXTAR GLOBAL BERHAD - Operationally Healthy

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The Group swung back into the black with a 3QFY19 net profit of RM8.7m following the previous quarter’s impairment-marred loss. Cumulative 9MFY19 net loss of RM5.3m is on track to meeting our full-year FY19 marginal net profit of RM2.6m. We reiterate again the fact that FY19 is a “cleanup year” of sorts given the consolidation of Halex and Hextar’s businesses, hence this less than-encouraging financials not particularly alarming. We continue to look forward to FY20, with scope for growth still ample despite it already dominating ~30% of the domestic market space. We affirm our Outperform call with an unchanged PE-derived target price of RM0.95 (16x FY20 EPS). The Group made an unexpected dividend announcement of 3.58sen per share.

  • 3QFY19 revenue is up 74.0% QoQ to RM97.2m mainly due to higher contributions from the Agriculture segment as operating conditions improved on the back of stronger commodities prices. Gross profit is higher by a more robust +96.0% QoQ to RM20.4m on account of better margins. The recent distribution agreement entered into with Sumitomo Chemical Vietnam Co. Ltd for distribution of its products in Vietnam augur well and paves the way for the Group to have a stronger presence in the Indochina market.
  • Mergers and acquisitions (M+A) have been identified as a growth strategy in expanding on the Group’s ~30% market share, though management is in no significant rush to close any deals given the prevailing soft market conditions. We gather things are currently being worked on. With the industry likely too fragmented to mount a serious challenge to its dominant market position however, the Group has bargaining power and time on its side.
  • Dividend declaration of 3.58sen per share is a surprise, and is just reward for a bulk of minority shareholders currently out-of-money post share placement exercise. We gather the Group has sufficient cash in its coffers following recent repayments on its receivables, for this dividend payment and/or M+A opportunities should they arise.
  • Uptick in commodity prices has also corresponded to greater applications of agrochemicals, pointing to an operationally stronger 2H2019 onwards (already partly reflected in 3Q2019 numbers).

Source: PublicInvest Research - 19 Nov 2019

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HEXTAR 0.65 -0.01 (1.52%) 165,000 

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