Investment Highlights

• We maintain our forecasts and fair value (FV) of RM1.04 based on 14x FY22F EPS. This is at slightly higher premium to its average historical forward PE of 12x to reflect its strong earnings prospects on the reopening of economies. We make no ESG-related adjustment to our FV based on our 3-star rating. Maintain BUY.

• Luxchem’s 9MFY21 core net profit of RM50.7mil (+68% YoY) met expectations, making up 68% of both our full-year forecast and the full-year consensus estimates. We consider the results to be in line with expectation as we are anticipating a stronger 4Q ahead, supported by the reopening of the economies, both domestically and regionally, as well as the contribution from Lexis Chemical, Lexis Specialties and Lexis Corporation, where the acquisition was completed in 24 August 2021.

• The group’s 9MFY21 turnover improved by 26% YoY to RM635.7mil (from RM506.0mil in 9MFY20), we believe is largely driven by stronger demand and higher prices of chemical products as economies around the world reopened.

• Its core net profit surged by a stronger 68% YoY to RM50.7mil (from RM30.3mil in 9MFY20), we believe, due to margin expansion stemming from: (1) inventories acquired at low prices prior to the strong recovery in prices of chemical products; and (2) lower tax rate.

• During the quarter, Luxchem has completed its acquisition of 55% equity interest each in Lexis Chemical, Lexis Specialties and Lexis Corporation. The companies are involved in manufacturing and trading of industrial chemicals and materials for the rubber glove and dipped latex industries. To recap, the acquisition comes with a profit guarantee of RM60mil net profit over three financial years ending February 2023.

• For the private placement (of which Luxchem proposed to issue up to 134mil new shares at an indicative issue price of RM0.7243 to raise up to RM97.3mil proceeds), Luxchem has placed out a total of 101.2mil new shares and raised RM72.6mil thus far. We have already reflected the entire exercises in our forecasts.

Source: AmInvest Research - 11 Nov 2021