TECHBND’s FY24 results met expectation. Its core net profit more than doubled driven by higher sales volume of its adhesive products and full year contribution from Malaysian Adhesives and Chemicals (MAC). Moving forward, the integration of MAC and the expansion of its upstream polymer operations is expected to further boost earnings. We maintain our forecasts but raise our TP by 8% to RM0.54 (from RM0.50). Maintain OUTPERFORM as recent price correction offers accumulating opportunity.

Within expectation. TECHBND’s FY24 core net profit of RM16.9m met our full-year forecast. Consensus estimate is unavailable as we are the only research house covering the stock.

YoY, its FY24 revenue surged 39% driven largely by: (i) higher sales volumes for its adhesive and sealant products due to a pick-up in orders from the furniture industry and new customers in the packaging sector, (ii) a shift to supplying its polymer products instead of internal consumption, and (ii) full-year contribution of RM25.7m from the newly acquired MAC. As a result, its core net profit more than doubled on an improved product mix, particularly from polymer products.

QoQ, its 4QFY24 core net profit rose 14% primarily due to higher sales volumes coupled with lower input cost from streamlining of MAC's expenses, particularly via waste reduction and labour optimisation.

Outlook. TECHBND’s FY25 earnings growth will be driven by: (i) increasing sales in furniture and packaging industry, (ii) synergies from MAC’s integration into its existing operations, both in terms of cost as well as the cross-selling of MAC’s products to its wider client network, and (iii) better utilisation rate at its upstream polymerisation plant.

The demand outlook for its products remains healthy, riding on the recovery of key industries, especially furniture and packaging, underpinned by restocking, new product launches by customers as well as penetrating new countries and customers. With the acquisition of MAC, TECHBND can now offer inner-tier adhesives for chipboard and particle board production expanding beyond its previous focus on surface-tier adhesives used in wooden joints and laminating. Typically, the furniture industry contributes to about ~60% of TECHBND’s total sales. Additionally, MAC is also the sole global producer of microspheres which are tiny and hollow spheres used in the aerospace industry.

TECHBND has started supplying polymer (raw material of adhesive) to external customers while actively pursuing more clients. Previously, its polymer output was consumed internally. TECHBND strategically targets manufacturers of technical adhesive products, which allows the company to carve out a niche in the market, unlike many manufacturers in China whose focus is on generic products given the lack of technical expertise that TECHBND possesses.

Forecasts. We maintain our FY25F earnings while introducing our FY26F numbers.

Valuations. We raise our TP to RM0.54 (from RM0.50) based on 13.5x PER after rolling forward our valuation to FY26F fully-diluted EPS of 4.0 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 (Page 4).

Investment case. 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.

Investment case. 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 - 23 Aug 2024