Hextar Global (HGB) saw another weak quarter with 4QFY22 net profit coming in at only RM4.6m (-67.1% YoY, -66.8% QoQ), notably impacted by margin compressions due to volatile raw materials costs which it was unable to pass through as expeditiously. Excluding impairment losses on goodwill and receivables, cumulative 12MFY22 core net profit of RM53.4m (+35.4% YoY) only comes in at 78% of our full-year estimates, a slight letdown. The discrepancy is also attributed to weaker sales in 4QFY22 as demand softened during the festive period. We trim FY23/FY24 estimates by 9% on average to account for weaker sales and lower margins. While longer-term prospects in the plantation industry and the continued application of agrochemicals remain encouraging, complemented by its exposure in the specialty chemicals space, we retain our Neutral call on the stock given near term operating challenges. Our PE-based target price is lowered to RM2.05 (RM2.21 previously) as a result of the earnings cut. We also roll-over our base valuation year to FY24.
- The agriculture segment weighed on HGB’s performance in FY22, reflected by the 8.1% YoY drop in revenue contribution to RM369.4m, compounded by a compression in net margins to 8.3% (FY21: 11.5%) as a result of heightened materials cost which it was unable to pass through as expeditiously. Management expects to see improved performances going forward as a result of its intensified sales and marketing efforts.
- The specialty chemicals segment was a mixed bag in FY22, with weakness in applications by the rubber gloves industry mitigated by ongoing recoveries in industrial production and tourism-related activities (hotels, restaurants, etc). Cumulative FY22 growth of +388.4% is the result of post-acquisition consolidation. The higher-margined nature of its products sees the segment now being a more significant profit contributor to the Group.
- The consumer products segment saw improved revenue contributions in FY22 (+54.2% YoY) in line with stronger private consumption numbers domestically, though still unable to turn around its business performance. Net losses widened to RM3.9m (FY21: -RM3.6m). Longer-term prospects are still encouraging nonetheless, with improved consumer confidence expected to drive demand for its products.
- Other developments. HGB will undertake a bonus issue of 2.6bn shares on the basis of 2 bonus shares for every 1 existing held, at a date to be determined later. Separately, the Group also declared a second interim dividend of 2sen, bringing cumulative dividend for FY22 to 3sen, representing a payout ratio of 70.1%.
Source: PublicInvest Research - 1 Mar 2023