TECHBND’s FY23 results came in within our expectation. Its FY23 turnover jumped 28% YoY driven by robust demand for adhesives and sealants, coupled with contributions from the newly-acquired MAC. The integration of MAC operations and its resulting synergies will continue to drive earnings growth. We maintain our FY24 forecasts, TP of RM0.45 and OUTPERFORM call.

Within expectations. TECHBND’s FY23 core net profit of RM9.4m met our forecast (there is insufficient market coverage to form a consensus estimate).

YoY. Its revenue grew 28% driven by increased sales at its core adhesives and sealants segment (+28%), coupled with the consolidation of the performance of recently acquired MAC. Its supporting services, which contributed to only 5% of group turnover, recorded a 25% growth in top line. However, TECHBND’s core net profit eased 16% on higher administrative costs.

QoQ. Its 4QFY23 core net profit surged 3x on the back of a 28% growth in top line due to favourable forex movements and lower administrative costs.

Outlook. Over the immediate term, TECHBND’s growth will be driven by the full-year contribution from MAC and synergies arising from the integration of MAC into its existing operations, as well as the marketing of MAC products to its wider client network.

To recap, TECHBND’s existing products mainly cater to the timber panel, wooden furniture as well as fast-moving consumer goods (FMCG) sectors such as water-resistant sticky labels for beverage bottles and adhesives for carton packaging replacing plastic straps or cling film. On the other hand, MAC’s adhesive products are used further upstream, catering to the production of chipboard, particle board, and paper carton packaging. MAC is also the sole global producer of microspheres which are tiny and hollow spheres used in the aerospace industry.

Forecasts. We maintain our FY24F earnings and introduce our FY25F numbers.

We also maintain our fully diluted TP of RM0.45 based on 13.5x CY24 PER, in-line with its international peers’ forward average. While the group is much smaller than the benchmarked peers, we believe the PER valuation is justified given the specialised nature of its business and exposure to niche markets that have less competition. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

We continue to like TECHBOND for: i) customer-centric, solution provider and manufacturer model, (ii) strong customer base across both consumer and woodworking sectors, and (iii) its growing presence in upstream and midstream operations through MAC. Maintain OUTPERFORM.

Key risks to our call include: (i) an extended downturn in the furniture sector, (ii) unfavourable foreign exchange movements, and (iii) lower than-expected production levels from both the core group and MAC.

Source: Kenanga Research - 24 Aug 2023