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HEXTAR GLOBAL BERHAD
Since its commencement in 1985, the Hextar brand has been marking its place as one of Malaysia’s foremost agrochemical companies. Today, the Hextar Group is a leading crop management solutions provider, both domestically and globally, thanks to its specialised agrochemical products supply chain. From research and development, to manufacturing and distribution, Hextar has consistently provided new and improved superior agrochemical products to its customers.
Current Price : RM1.28
Kim's Target Price:
TP1: RM1.40 (immediate)
Warrants : Hextar-CA & Hextar-CB
Both TP's : 0.30c - 0.50c ranges
The Keys :-
1. Good fundamental stock.
2. Country's largest pesticide producer.
3. Incoming Good Q2FY21.
4. Global Phosphate Rock Market.
5. China's major fertiliser makers to suspend exports amid tight supplies.
6. The Malaysia Agrochemicals Market is growing at a CAGR of 4.5% over the next 5 years.
WHAT KIM SAY?
"Global Phosphate Rock Market"
- The global Phosphate Rock market is valued at USD 6850.4 million in 2019. The market size will reach USD 7350.4 million by the end of 2026, growing at a CAGR of 1.0% during 2021-2026.
- The Malaysia Agrochemicals Market is projected to register a CAGR of 4.5% during the forecast period (2021-2026) and China's major fertiliser makers to suspend exports amid tight supplies is a good news.
- Top global economies, like India and the United States, depend on fertilizer manufacturers in China. Without their high-quality fertilizers, the agricultural sector of major economies like these would suffer. Fertilizers enhance soil fertility and replace depleted chemical elements taken from the soil by previous harvests. Without fertilizers, farmers would struggle to grow enough food to feed their communities.
- China is the top chemical and mixed compound fertilizer exporter in the world. Fertilizer manufacturers in China hold 20% of the global export market, which is valued at $3.3 billion (2016). The main importers of China’s fertilizer include India (31%), Vietnam (10%), Pakistan (7.3%), Brazil (7.2%) and Thailand (5.9%)
Some of lists China companies :-
Hubei Xinyangfeng Fertilizer
Luxi Chemical Group
China BlueChemical Ltd
MALAYSIA - Major Players :-
Crop Protection (M) Sdn. Bhd.
Agricultural Chemicals (M) Sdn. Bhd. (ACM)
Advansia Sdn Bhd
WHY I PICKED THEM AS A GEMS?
1. Decreasing per capita arable land and increasing demand for food
Population in the region is increasing at a rapid rate. This growing population is adding to the food demand. Supplying food to this growing population has become a threat. On the other hand, arable land is declining, due to industrialization and urbanization. Fertilizers have been used for a long time to increase the productivity of crops. Adequate and balanced use of agrochemicals will help in feeding the growing population from the available cultivable land. This will boost the demand for agrochemicals such as fertilizers and pesticides in Malaysia. The strongest forces driving the demand for agrochemicals include the need for crop intensification (to increase yields per acre) while pursuing increasingly sustainable practices, seeking biological alternatives to boost production with decreased pressure on the environment, or adding to integrated practices to close the yield gap.
2. Increasing demand for Chemical fertilizers in plantation crops
The potassic fertilizers segment occupies the largest share of the fertilizer market. This growth can be attributed to the continued expansion of oil-palm cultivation, which requires a significant amount of potassic fertilizers.Plantation crops, like oil palm and rubber, consume the majority of agrochemicals in the country followed by cereals and vegetables. The oil palm industry in Malaysia is the prominent agricultural sector in the country and plays a key role in world and fat trade. The cultivation of oil palm requires high use of chemical fertilizers to achieve significant yields, which in turn drives the growth of agrochemical industry in the country.
3. The Malaysia Agrochemicals Market is projected to register a CAGR of 4.5% during the forecast period (2021-2026).
The COVID-19 has affected the production and supply of agro chemicals market. The global pandemic has impacted the proper functioning of various industries across the globe, and it also affected the functioning of the agro chemicals market as well. In terms of supply, a short-term shortage of migrant laborers amidst distribution bottlenecks created a wide gap between the number of workers required for the production of agro chemicals and the ones available leading to decrease in production efficiency and disruption of supply chains in the country. Thus, global pandemic, COVID-19, caused negative impact on the Malaysian agrochemicals market.
4. Malaysia's agriculture is an important industry, as it ensures food security and increases income levels in rural areas.
The gradual decline of arable land can be attributed to urbanization. Population statistics and declining arable land are responsible for maintaining adequacy in agricultural practices, ensuring greater utilization of agrochemical products in the areas that were ignored in the past. In Malaysia, the use of agrochemicals has been growing at a significant pace, particularly, for pesticides and fertilizer consumption as modern practices are being utilized in fields. The growth of agrochemical industry also depends on the rapid expansion of areas, under oil palm and rubber plantations.
ANOTHER REASON :-
1. Hextar Global announced the acquisition of a 100% interest in the Nobel Group of Companies for RM105m in a move to widen its footprint in the specialty chemicals sector.
2. In March this year, the Group acquired the Chempro Group of Companies for RM138m. This acquisition will also come with an annual profit guarantee, at a slightly higher RM14m per year over the next 3 years. View of this earnings-accretive deal positively.
The Nobel Group of Companies manufactures and supplies chemical derivatives, coating and related products. It provides high performance custom-made anti-tack rubber lubricant and coatings for the rubber industry. Its customers include some of the world’s largest rubber glove manufacturers.
The acquisition will cost RM105m in cash and comes with a cumulative 3-year profit guarantee of RM42m, or a profit after tax guarantee of RM14m per annum until year-end December 2023. Two companies will be acquired – Nobel Synthetic Polymer Sdn Bhd and Nobel Scientific Sdn Bhd. Funding will be via a combination of internally-generated funds (RM50m) and borrowings (RM55m). While the Group’s gearing will rise to 1.0x pursuant to the acquisitions of Chempro and Nobel, we are not overly troubled given its strong operational cash flows.
Approvals will be required from shareholders, though not likely to be an issue as well given the earnings-accretive nature of this transaction. The deal is expected to be completed by early September 2021.
The Nobel Group of Companies will complement the recently acquired Chempro Group of Companies. While the coming 3 years will see a cumulative RM27m net profit contribution (before interest costs) from the guarantees. The Group will continue to pursue its acquisition-led strategy to drive growth, though also expanding the reach on its cashflow-strong bread-and-butter agrochemical business.
Enra Kimia Sdn Bhd (EKSB) and its subsidiaries supply specialty chemicals, catalysts and odorants, as well as provide ancillary services for these products to the oil and gas and petrochemical industries. Countries of coverage are Malaysia, Australia and New Zealand. It is also an exclusive agent to 12 international principals, serving close to 85 products and is one of the largest distributors of specialty chemicals and catalysts for the oil and gas industry in Malaysia. More importantly, it is licensed to conduct business with the Petronas Group of Companies.
Further to the Company’s announcements on 23 July 2021 and 30 July 2021 respectively in relation to the Proposed ENRA Kimia Acquisition, the Board of Directors of Hextar wishes to announce that Hextar has, on 2 August 2021, entered into a conditional Share Sale Agreement with Ekopintar Sdn Bhd and Enra Energy Sdn. Bhd. for the acquisition of Enra Kimia Sdn. Bhd. (“ENRA Kimia”), at the Purchase Consideration of RM50,000,000 to be fully satisfied by cash ("Proposed ENRA Kimia Acquisition").
HEXTAR FINANCIAL REPORT
Directors Share Purchases
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