Techbond proposed to undertake a bonus issue on a basis of 5 bonus shares for 4 existing shares. Its managing director Lee Seng Thye said the bonus issue would potentially improve its trading liquidity and broaden its shareholder base. The corporate eercise is expected to be completed in first quarter of this year.
 

Some updates on the company's latest development, the management mentioned:

1) Oversea orders remained robust

The company is seeing sustainable demand from wood working industry, with healthy growth from other segment as well, such as mattress and packaging sectors.

2) New factory in Vietnam is expected to be ready soon!
Techbond is currently conducting trial run for their machinery at the factory complex. The company expects to begin mass production once it completes the trial run and apss the plant acceptance test. Techbond is looking forward to utilise up to 70% of its new plant capacity in near future, whereby 30% of the capacity will be utilised for polymer develoopment and another 40% will be utilised for its new paper manufacturing water-based glue.

Catalyst tapping into Chinese Market
Looking at the well under-controlled covid-19 numbers at vietnam, I see the new production from Vietnam Industiral park to be a new catalyst for techbond this year. The management has been hinting on some potential Mainland Chinese market opportunity in recent months, I believe the geograhical location of Vietnam factory will give the company a lift on their competitive edge towards the other competitor in the region.

ESG Compliance
Techbond will be having first-mover advantage to make adhesive using palm oil. Although currently some players in the global market claimed that they can manufacture zero formaldehyde-based adhesives using petroleum polyol, but their cost is definitely much higher than palm oil based. Its key client base, the furniture companies are going towards green direction as well. With the market-changing innovation, Techbond could position themsleves to meet ESG compliance criteria in the future to make its company's valuation more attractive. (EPF mentioned its investment will go 100% ESG within next 10 years!

Target price of RM2.50  - With the expansion initiatives & strong track records by Techbond, we believe the profit driver from adhesive industry will continue to sustain in long term given their consistent revenue line from their strong customer relationship based on their past income records. Therefore, we are projecting a 3-year net profit CAGR of 22% to MYR 20 million in FY23, taking into account of low-cost business model & consistent demand in adhesive industry as well as its potential positioning to meet ESG requirements. With that, Techbond could be valued at RM 2.50 assuming a 25.5x PER on 2023F EPS. Although Techbond’s actual PER (x) are valued at 31x, but we would like to play the conservative card as we believe some of the potential upside may be factored by market participants. Techbond is moving towards a maturing stage beyond FY2023 where expansion uncertainty & industry pain will be factored in along.