Hextar Global Bhd (HGB) 1Q23’s Core PATAMI of RM8.6mn (QoQ:  +20%, YoY: -44%) came-in below our and consensus estimates  accounting for only 16% and 12% of full year forecast respectively.  The deviation against our projection was mainly due to higher-than-expected operating expenses, finance cost and over provision on  depreciation. HGB’s FY23 earnings outlook is expected to remain  steady, to be backed by new income generation from specialty  chemicals that will supplement income from agrochemicals business.  Maintain a HOLD call with TP of RM0.74.

• Below expectations. HGB’s 1Q23 PATAMI of RM8.6mn (QoQ: +20%,  YoY: -44%) trailed our and consensus’ expectations, accounting for  only 16% and 12% of full year forecast. The deviation against our  projection was mainly due to the higher-than-expected operating expenses, finance cost and over provision on depreciation.

• QoQ. HGB’s 1QFY3 revenue and PATAMI increased by 3% and 86%  QoQ respectively. This was due to resilient revenue contribution from Agrochemicals segment that drove improved financial performance for the Group, counterbalancing lower revenue from the Consumer  Products Segment. Conversely, improvement in PATAMI was due to  the absence of one-off impairment losses as provided in 4Q22, lower  finance costs and lower effective tax rate of 31.4% (-10.4 ppts QoQ).

• YoY/YTD. The Group revenue eased by 6.7% YoY to RM143mn primarily due to lower contribution from consumer productssegment and agriculture segment which offset the strong revenue growth in  the Specialty segments - which benefited from robust revenue  expansion from a strong global recovery and demand for specialty  cleaning chemicals from institutions, hotels and restaurants as well as  the oil and gas industry. The persistent downward pressure on selling  prices of agrochemical products especially in the selling price of key  Herbicides led to lower revenue from agriculture segment. On that  score, PATAMI dropped by 45%, mainly due to higher finance cost and  overhead expenses, added by lower share of result from JV that  pressuring margin to drop to 6% from 10% in 1Q22.

• Outlook. We are optimistic on the long-term prospects of HGB due to  its strong market position in the domestic agrochemical sector and  the promising growth potential of the Specialty Chemicals segment.  We believe these factors will contribute to the company's earnings  growth in the long run. Moreover, the strategic decision to divest the  consumer products segment is expected to improve the company's  strategic positioning by allowing it to fully concentrate on its core  chemicals business, especially in light of the financial challenges faced  by the consumer products segment.

• Our call. No change in earnings forecast as earnings are expected to  catch up from second quarter onwards. Maintain a HOLD call with TP of RM0.74 (Table 3) pending meeting with management

Source: BIMB Securities Research - 22 May 2023