TECHBND is the only listed industrial adhesive and sealant manufacturer in Bursa Malaysia. Its industrial adhesive (contributes ~90% of the group revenue) is mainly used in wood-based, paper and packaging, and automotive applications. The bulk of its sales revenue is derived from export markets (75% of total revenue) to countries like Vietnam, Indonesia and China. The group stands to benefit from the trade diversion from China to Vietnam and Malaysia on the back of the US-China trade war.

TECHBND is trading at a trailing 22.2x P/E (-8.9% to its 2 years average of 24.6x). Management remains positive of its future prospects, supported by its expanded manufacturing plants in Sham Alam and Vietnam to cater for the robust orders from local and overseas customers in the woodworking, automotive and packaging sectors.

The modern complex in Vietnam (to commence production by 4Q21) comprises a new upstream polymerization plant (that produces PVAc polymer as the base material for manufacturing of water-based adhesives) as well as 2 new water-based adhesives production lines. The integrated facility will help TECHBND to have better control of its production cost while reducing the dependency on external suppliers.

Meanwhile, TECHBND’s latest collaboration with the MPOB in pioneering palm oilbased industrial adhesives using locally source and sustainable palm oil is likely to contribute positively in the long term, capitalising its non-toxic palm oil-based industrial adhesives as consumers worldwide are increasingly more health and environmentally conscious.

Technically, TECHBND is poised for a downtrend reversal breakout in anticipation of a double bottom formation. A succesful breakout of its necklines (RM0.53) will spur prices higher towards RM0.55-RM0.60 territory. Collection levels are RM0.44-0.485. Cut loss at RM0.43.

Source: Hong Leong Investment Bank Research - 22 Jul 2021