INVESTMENT HIGHLIGHTS

• Petronas Chemicals Group Bhd’s (PChem) is acquiring Da Vinci Group B.V

• Acquisition is in preparation for its venture into specialty chemicals

• Acquisition is expected to be fully-funded via internally generated funds

• FY19-20F earnings maintained for now

• Maintain BUY with unchanged TP of RM10.23 per share

Acquisition of Da Vinci Group B.V. Petronas Chemicals (PChem) has announced that it has entered into a sales and purchase agreement (SPA) to acquire a 100% stake in Da Vinci Group B.V. The acquisition; which include among others, fund managed by Bencis Capital Partners will be for a purchase consideration of EUR163m in cash or approximately RM760.8m.

Acquisition in line with its venture into specialty chemicals. Da Vinci Group B.V is a company based in the Netherlands which is involved in its own-brand reselling, formulating and manufacturing of silicones, lube oil additives and chemicals. We are positive on this acquisition as we opine that the acquisition will assist in growing PChem’s specialty chemicals portfolio and grants PChem the strategic advantage as it provides a compelling entry into the growing silicone business. The acquisition will also enhance PChem’s competitive reach particularly in the Asia Pacific region which hosts a number of PChem’s clientele. The acquisition is also in-line with Management’s aspiration of venturing into the specialty chemicals business which will enhance its value proposition in terms of offering a broader range of chemical products as well as; cushioning the impact on PChem’s earnings from the oversupply of chemicals due to newly operational crackers in the Middle East.

Acquisition to be potentially funded by internally generated funds. We opine that PChem will be funding the acquisition via its internally generated funds due to its comfortable cash position which stands at RM10.3b (excluding borrowings) as of December 2018. It is highly unlikely that it will fund the acquisition via borrowing considering the above however; should the need arise, the acquisition will have minimal impact on PChem’s gearing ratio. PChem’s gross gearing will increase to 0.1x from 0.06x post acquisition should the acquisition be funded through borrowings.

Source: MIDF Research - 17 May 2019