Hextar Global (HGB) has embarked on a fresh round of corporate exercises following a period of lull, with the overnight announcement of various transactions which are anticipated to be earnings accretive, albeit not as significant as the acquisitions undertaken in 2021. Cumulative benefit to net profit is expected to be ~RM6.6m, based on 2022 numbers, though we err on the side of conservatism and keep our earnings estimates unchanged at this juncture. The moves will see HGB exiting the consumer product space to be fully focused on its core chemicals businesses. While we ae encouraged by this development and with longer-term prospects in the plantation industry and the continued application of agrochemicals remaining 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 kept unchanged at RM0.68 (post-adjustment for two-for-one bonus issue).

• Transaction #1 will see HGB enter into a related-party deal to acquire a 100% interest in Hextar Industrial Chemicals Sdn Bhd (HICB), a company involved in the trading and distribution of industrial chemical products such as chemicals for food, pharmaceutical, plastic, coating, Polyvinyl Chloride (PVC), personal care, runner and adhesive, and others. As part of its diversification strategy, HICB will be acquired for RM10m in cash from Hextar Holdings Sdn Bhd. Net profit of HICB as at 31 December 2022 was RM2.64m, deeming the deal relatively inexpensive at a trailing price-earnings ratio 3.8x.
• Transaction #2 will see HGB dispose of its entire equity interest (100%) in Halex Marketing Sdn Bhd (HMSB) for RM1 and its entire equity interest (100%) in Halex Woolton (M) Sdn Bhd (HWSB) for RM3.5m, both to Vinyaka Capital Sdn Bhd in a non-related party deal. HMSB and HWSB are principally engaged in the manufacturing and distributing of disposable healthcare products such as wet wipes, tissues, and cotton-based products. This will see HGB exiting its consumer products business, which incidentally has been loss-making in recent years. While expected to register a marginal disposal loss of RM688, the non-consolidation of respective losses of RM1.05m (HMSB) and RM2.86m (HWSB) going forward is a notable plus point.

Source: PublicInvest Research - 16 May 2023