Hexza Corporation Bhd

Proxy to rising demand in healthcare products

• We like Hexza as one of the key players of ethanol manufacturers in Malaysia. Despite the implementation of MCO, Hexza was not affected as the group has obtained approval from the Ministry of International Trade and Industry (MITI) to remain operational.

• At RM1.22, Hexza trades at trailing-12 months (TTM) PE 16.0x, which is below its two-year historical average of 17.1x. Technically, the uptrend formation is established and price is attempting to form resistance breakout above RM1.23, targeting RM1.38-RM1.49.

Trading Catalyst

• Hexza Corporation Bhd (Hexza) history traces back to 1969 before debuting on Kuala Lumpur Stock Exchange (now Bursa Malaysia) on 1979. We like Hexza due to (i) rising demand of ethanol as a key ingredient of hand sanitisers, (ii) undisrupted production throughout the MCO period and 3) positive progressive fundamentals, equipped with net cash position. We see the improvement in ethanol segment will continue to cushion the weakness from resin segment due to the latter being impacted by lower demand in MCO period.

• At current price of RM1.22, Hexza is trading at TTM PE of 16.0x vs. the 2Y historical average of 17.1x; suggesting potential upside in our view. Balance sheet wise, Hexza is backed by net cash position with war chest amounting to RM90.3m (~45.1 sen net cash per share) as oppose to zero borrowings. The group is also actively seeking for potential merger & acquisition (M&A) activities to expand current business operations.

Technical Outlook

• Technically, share price has rallied before staging a healthy pullback towards the daily EMA60 level. With the uptrend formation being re-established, a breakout above the RM1.23 resistance may see price attempt to re-test the RM1.38-RM1.49 targets with long term target at RM1.60. Support is pegged at RM1.10 and cut loss is located at RM1.09.

Source: Mplus Research - 6 Jul 2020