Kenanga Research & Investment

Techbond Group - Uptick in Demand, MAC Contributes

Publish date: Fri, 23 Feb 2024, 10:49 AM

TECHBND’s 1HFY24 results met our forecast. Its 1HFY24 core net profit more than tripled driven by strong sales of adhesive and sealant products, coupled with maiden contribution from Malaysian Adhesives and Chemicals (MAC). Going forward, the synergy from the integration of MAC will add another earnings booster. We maintain our forecasts, TP of RM0.45 and OUTPERFORM call.

TECHBND’s 1HFY24 core net profit of RM9m came in at only 44% of our full-year forecast. However, we deem the results within our expectation as we expect a stronger 2H backed by a sustained uptick in sales and synergy from operational and marketing integration with MAC. There is insufficient market coverage to form consensus estimate.

YoY, its 1HFY24 revenue surged 59% driven largely by higher sales volumes for the adhesive and sealant products, coupled with maiden contribution from newly-acquired MAC. Its core net profit more than tripled thanks to normalisation ofinput and a favourable sales mix.

QoQ, its 2QFY24 core net profit rose 37% thanks to higher sales and lower input cost.

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.

Valuations. We also maintain our TP of RM0.45 based on 13.5x fullydiluted FY25F EPS 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 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).

Investment case. We continue to like TECHBOND for: (i) customercentric, 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) lowerthan-expected production levels from both the core group and MAC.

Source: Kenanga Research - 23 Feb 2024

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