THINLY-TRADED Texchem Resources Bhd has seen much higher trading volume since last November after it announced the sale of a 28% stake of Sushi Kin Sdn Bhd to Japanese fast-food restaurant giant Yoshinoya Holdings Co Ltd for RM102.2mil.
Following the announcement, Texchem’s share price shot up by 27% from 82.5 sen to RM1.05.
The transaction values Sushi Kin, which operates the popular Sushi King Japanese chain, at RM262.3mil. This implies that the remaining 72% stake Texchem holds in Sushi Kin is worth RM188.86mil, which is higher than its market cap of RM164mil.
More interestingly, the entry of Japan listed-Yoshinoya marks a new partnership for Texchem.
After the opening of Tim Ho Wan at Mid Valley City, Kuala Lumpur, its executive chairman Tan Sri Fumihiko Konishi told reporters that the company intended to expand its business by bringing in three new brands to the Malaysian market: Yoshinoya Beef Bowl, Hanamaru Udon and Doutor Coffee.
The proceeds from the sale of the 28% stake will be utilised for the restaurant expansion plans as well as for its working capital.
He expects to invest RM12mil to kick-start the three new brands and estimates the cost of each outlet to be about RM1.5mil.
He says Texchem and its partner Yoshinoya, which has a market cap of 86.38 billion yen (RM2.66bil), plans to open Yoshinoya Beef Bowl and Hanamaru Udon not just in Malaysia but also in other regional markets.
On top of that, it will continue to grow its Sushi King chain to 103 outlets this year from the existing 89.
It is also planning to open 10 Tim Ho Wan dim sum restaurants in three years.
Texchem owns 51% in Dim Sum Delight Sdn Bhd that operates Tim Ho Wan in Malaysia.
With the expansion of its restaurant business, he expects the division to contribute some RM300mil to the group’s topline in 2015 compared with RM150.9mil recorded for the first nine months ended Sept 30, 2014.
Fumihiko explains that the company is focusing on its restaurant division this year due to the brisk growth in the food and beverage industry.
On the goods and services tax for the restaurant business, its president and group CEO Brian Tan Guan Hooi says the impact to its profit margin is minimal to slightly positive because it will be able to claim back from the input tax as compared to the sales and services tax currently.
Tan is also unperturbed by any possible softening in consumer sentiment because most of its restaurants are in the affordable fast-food category and opines that Malaysians will still spend on food because of the eating out culture.
Texchem’s restaurant business is the largest profit contributor to its bottom line for the first nine months of financial year 2014 at RM10.35mil.
However, due to losses amounting to RM10.93mil from its polymer engineering division, its profit for the period was dragged down to a mere RM2.45mil.
Tan says the company is in the midst of diversifying from consumer products to medical life sciences products for the loss-making division.
“We target to turn the division into a profit-making one in 2015 because medical and life sciences products require more stringent certification processes and previously they were still in a gestation period.”
Another reason for the losses in the division was the research and development expenses for the diversification of its products.
The current macroeconomic environment, particularly the low oil prices and strengthening US dollar, is conducive for Texchem’s industrial and food divisions.
Its food division, which exports seafood products, is set to benefit from low fuel prices because a huge portion of the cost of fishing activities is attributed to transportation and logistics.
The division registered a topline of RM156.77mil and bottomline of RM1.88mil for the nine months period of financial year 2014.
Its industrial segment will also benefit because of lower raw material prices that are derivatives of crude oil.
The industrial segment is the company’s biggest income contributor, raking in revenue of RM310.08mil but a thin profit of RM4.2mil, implying a net margin of 1.35%.
“We can’t tell how much that will impact our bottom line yet because we do not know the direction of oil prices for the rest of the year.”
As an exporter, Texchem would benefit from the strengthening US dollar. Tan says half of its trade are done in the greenback while another half is in Japanese yen. The yen too has weakened against the ringgit.
He is conservative on the benefits of foreign exchange gains because the strengthening US dollar may offset the weakening yen.
The biggest source of imports for the food division is Japan while demand from China had slowed down in 2013.