Kenanga Research & Investment

Techbond Group Berhad - MAC Story Sticks

Publish date: Fri, 01 Dec 2023, 10:00 AM

TECHBND’s 1QFY24 results met our expectation. Its 1QFY24 core net profit more than doubled driven by contributions from newly acquired Malaysian Adhesives and Chemicals (MAC) coupled with lower input costs and a favourable sales mix. TECHBND, via MAC, is penetrating into new segments. We maintain our forecasts, TP of RM0.45 and OUTPERFORM call.

TECHBND’s 1QFY24 core net profit of RM4m came in at only 19% of our full-year forecast. However, we consider the results within our expectation as we expect stronger quarters ahead as it realises more synergy with MAC. Consensus estimate is unavailable as we are the only research house covering the stock in the market.

YoY, its 1QFY24 revenue jumped 56%on a broad-base improvement across all segments, especially its core adhesives and sealants segment (+54%) with contributions from the recently acquired adhesives and chemicals specialist, MAC. Its core net profit more than doubled on lower raw material costs and a favourable sales mix.

QoQ. Its 4QFY23 core net profit fell 8%, weighed down by higher administrative costs.

Outlook. TECHBND’s long-term growth trajectory is underpinned by the full-year contribution from MAC and the synergy from MAC’s integration into its existing operations, including the cross-selling of MAC’s 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 microsphereswhich are tiny and hollow spheres used in the aerospace industry.

Forecasts. Maintained.

We also maintain our TP of RM0.45 based on 13.5x fully-diluted CY24EPS of 3.3 sen, in-line with the forward PER of its international peers such as H.B. Fuller Co, Henkel AG & Co and 3M Co. 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, solutionprovider 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) lowerthan-expected production levels from both the core group and MAC.

Source: Kenanga Research - 1 Dec 2023

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