• Maintain HOLD (TP: RM0.72) Hextar Global Bhd (HGB)’s 9M23 core PATAMI of RM34mn (-24% YoY) exceeded our estimates but aligned with consensus expectations, accounting for 83% and 73% of the full-year forecast, respectively. The deviation from our projection was mainly due to an overprovision we made for operating expenses. In light of these results, we have adjusted our FY23 and FY24 earnings forecast higher to RM46.8mn and RM50.8mn respectively from RM41.7mn and RM48.4mn previously. We maintain an optimistic outlook on the long-term prospects of HGB, given its robust standing within the domestic agrochemical sector and the anticipated favourable growth trajectory for the Specialty Chemicals segment. Maintain a HOLD call with a new Target Price of RM0.72 (RM0.69 previously) based on sum-of-part (SOP) methodology.

• Key highlights. Revenue in 3Q23 increased by +37% QoQ/+17% YoY to RM183mn, primarily due to higher profit contributions from both the Specialty Chemicals segment and Agrochemicals segment, driven by 1) higher market demand and favourable selling price for glyphosate-related products, and 2) consolidation of the newly acquired subsidiary, Hextar Industrial Chemicals S/B, along with higher exports of specialty chemicals for rubber glove industries. In tandem, core PATAMI grew 38% QoQ/8% YoY, reflecting an improved gross margin on agrochemicals products arising from efficient raw material stock management.

• Outlook. We are optimistic on the long-term prospects of HGB, given its robust standing within the domestic agrochemical sector and promising growth potential from the Specialty Chemicals segment. Moreover, the strategic decision to diversified earnings base to acquire PHG Ever Fresh Group would further uplift the group earnings given favourable outlook and growth in demand of the durian from Asia region. We hold the belief that these key factors will collectively play a substantial role in fostering sustained earnings growth for the company over an extended period.

Source: BIMB Securities Research - 21 Nov 2023