• Overview. Hextar Global Bhd (HGB) core PBT declined to RM13.6mn in 4Q22 (- 26% YoY) mainly due to lower contribution from Agrochemical segment as margin  dipped to 6% from 17% in 4Q21. This was also dragged by a 46% increase in  operating expenses and lower share of profit from joint venture. On a QoQ basis,  in line with 14% QoQ drop in revenue, a 32% decrease in core PBT was attributable to lower profit contribution from Agrochemical and Specialty Chemicals segments  as margin contracted to 6%/22% respectively from 12%/26% in 3Q22. The variance  in core profit was mainly due to impairment loss on goodwill and trade receivable  amounting to RM3.9mn, gain on disposal of PPE, fair value loss/gain in investment  properties and unrealised loss/gain on foreign exchange.

• Key highlights. On a separate announcement, the Board of HGB proposed to  undertake a bonus issue on the basis of 2 Bonus Shares for every 1 existing HGB  share held and if approved, the proposed bonus issue is expected to be completed  by the third quarter of 2023. Upon completion of the exercise, our theoretical exbonus TP would be at RM0.75 (as a result of dilution).

• Against estimates: Below. HGB’s FY22 performance came in below our estimate  with core PBT of RM77.6mn (+45% YoY) making up 93% of our full year forecast (mainly due to our underestimation on operating and other expenses costs). Note  that revenue and PBT of Specialty Chemicals increased tremendously surpassing  the Agrochemical segment as the major profit contributor, registering revenue  and PBT of RM226mn and RM52mn respectively in FY22 – Table 2.

• Dividend. The Board declared a second DPS of 2.0sen for FY22, bringing total cash  dividend declared to date to 3.0 sen (FY21: 2.2 sen), payable on 3 April 2023. At  the current market price, this translates into a yield of 1.3%.

• Outlook. We are positive on the long-term prospect of HGB given its market leader  position in domestic agrochemical sector as well as impressive contribution from  Specialty Chemicals segment that may support earnings growth in the future.

• Our call. Following the result, we tweak our FY23 earnings forecast to RM54mn  from RM66mn previously as we revisit our assumptions on revenue, margins and  costs to be more reflective of current and future expectations. Maintain a HOLD  call with TP of RM2.24 based on sum-of-part (SOP) methodology – Table 3.

Source: BIMB Securities Research - 1 Mar 2023