Hextar Global (HGB) ended the FY21 financial year strongly with a 4QFY21 net profit of RM14.3m (+24.5% YoY, +97.9% QoQ) as it saw new contributions from its newly-acquired specialty chemicals segment, as well as improved contributions from its Agriculture segment. Cumulative 12MFY21 net profit of RM39.6m (-11.1% YoY) was affected by expenses incurred for its various corporate exercises, in addition to cost pressures from supply chain-related disruptions. This is however in line with our expectation at 103% of full-year estimates. We continue to like HGB’s prospects, with growth underpinned by its leadership positon in the domestic agrochemical market space and supplemented by its acquisition-driven contributions. We lower our call to Neutral however as the share price is currently trading in the region of our unchanged RM1.71 target price which is based on 30x to FY22 earnings, the higher multiple justifiable given its 1) the robust earnings growth from its acquisition-related activities (>50%), and 2) management’s ability in continuously enhancing shareholder value. The Group declared a second interim dividend of 1.2sen per share, bringing full year dividend to 2.2sen.

• 4QFY21 highlights overview. Revenue was higher by 35.6% YoY and 22.7% QoQ due to full consolidation of contributions from its recently acquired Specialty Chemicals businesses. Delivery of backlogged orders in its Agriculture segment also contributed to the revenue growth. Net profit was correspondingly higher (+24.5% YoY, +97.9% QoQ) as margins improved (4Q: 10.3%, 3Q: 6.4%).

• The agriculture segment remains a major growth driver for now, reflected by 4QFY21 revenue of RM120.8m, (+10.3% YoY, +29.1% QoQ) and net profit of RM15.4m (+18.2% YoY, +74.6% QoQ) still making up the lion’s share of overall Group numbers. Management continues to see sustainable income from this segment going forward, underpinned by development of new products to improve its competitive advantage.

• The specialty chemicals segment is now the Group’s second largest contributor, with revenue of RM48.6m (+>100% QoQ) and net profit of RM4.2m (+>100%) providing encouragement of better quarters to come. Demand for specialty chemicals is expected to remain robust in 2022, driven by improved industrial production as the global economic recovery continues afoot. The segment comprises the Group’s 4 recent acquisitions – the Chempro Group of Companies, the Nobel Group of Companies, Tufbond Technologies and the 49%-interest in Enra Kimia Sdn Bhd.

• The consumer products segment was a slight letdown, with an RM1.1m net loss reported for FY21. Revenue of RM22.6m was lower by 40.2% YoY, with performance affected by movement restrictions during the financial year. Management has indicated of a change in its business direction, from appointing a sole distributor before to various authorized distribution channels going forward. We reserve comment at this juncture.

Source: PublicInvest Research - 22 Feb 2022