Hextar Global (HGB) reported a 1QFY22 net profit of RM15.6m (+45.5% YoY, +9.7% QoQ), the stronger YoY performance the result of consolidating new earnings from its recently-acquired specialty chemicals businesses. This was partly weighed by poorer contributions from its Agriculture segment however. While we anticipate improvements in the quarters ahead on the back of ongoing strength in the plantation industry, we err on the side of conservatism and trim FY22-FY24 estimates by an average 7.9% as we impute lower operating margins. We continue to like HGB’s prospects, with growth underpinned by its leadership position in the domestic chemical-based market space, though we maintain our Neutral call given limited share price upsides to our rolled-over target price of RM1.66 (RM1.71 previously).

• 1QFY22 highlights overview. The quarter was mixed bag with revenue growth driven by further consolidation of contributions from its recently acquired Specialty Chemicals businesses, though weighed by weaker numbers in the Agriculture segment. Net margins were steady at ~10% nonetheless, with raw material cost issues largely under control.

• The agriculture segment still contributes the lion’s share in terms of revenue (~63%), though now less prominent profit-wise. For the quarter, the segment recorded poorer contributions (-12.2% YoY, -20.1% QoQ) due to slightly weaker sales in Indonesia. Net profit contribution of RM9.7m was correspondingly lower (-17.9% YoY, -36.6% QoQ), as the segment also saw some margin compressions.

• The specialty chemicals business contributed RM51.3m (+>100% YoY, +5.6% QoQ) to overall revenue, with the segment’s higher-margined products resulting in a net profit of RM9.8m (+>100% YoY, +135.0% QoQ). Demand for specialty chemicals is expected to remain robust in 2022, driven by improved industrial production as the global economic recovery continues afoot.

• The consumer products segment continued to struggle as a net loss of RM655,000 was reported this quarter (1QFY21: RM178,000 net loss). Management is enlarging its product range to enhance its market share nonetheless, with improvements in consumer confidence anticipated to drive business recovery.

• Recent developments. The Group has also entered into a related party transaction to acquire a 100% stake in Hextar Kimia (Australia) for RM14.3m, the latter in the business of supplying liquid odorant, dosing systems and servicing to gas delivery and storage systems. This is to facilitate the Group’s expansion into the Australian market, not only in the oil and gas sector but also in the agrochemical and fertiliser sectors.

Source: PublicInvest Research - 24 May 2022