PETALING JAYA: Hexza Corp Bhd , a manufacturer of synthetic resins and chemical products, has slowly been gaining ground, thanks to measures undertaken since February this year to strengthen its earnings portfolio.
In the late 1990s, the stock was among the favourites trading at above RM2.50 before collapsing alongside concerns that valuations of the entire stock market had run ahead of fundamentals.
While riding on a general recovery trend in recent years, trading in Hexza gathered momentum only fairly recently, pushing the shares all the way to 94 sen in April – the highest it has been in 15 years.
It, however, slipped into a mild consolidation mode owing to light profit-taking thereafter.
At Friday’s close, the stock finished at 92 sen, giving the company a market capitalisation of RM184mil.
Notably, since February until now, the Ipoh-based Hexza, which has been quiet and low-profile for the longest time, made two announcements that could yield the smallish company over RM40mil in total.
On Feb 11, the company announced to the stock exchange that it had entered into a sale and purchase and lease agreement with Singapore’s Tembusu Industries Pte Ltd for it to buy from, and lease back, engineering equipment to Tembusu, indirectly giving itself a recurring income for the next 10 years.
The equipment would be used for a 8MW heavy fuel oil power generation system in Kauthaung, Myanmar.
Under the agreement, which does not need shareholders’ approval, Hexza will pay US$6mil (RM22.8mil) to Tembusu to buy the equipment and then lease it back to that company at a monthly rental of US$130,205 or US$1.56mil annually for the next decade.
Back-of-the-envelope calculations show that it will reap some US$9.6mil return on investment from this purchase and lease deal, which going by the company’s announcement, should have already been completed on July 1.
In its announcement to Bursa Malaysia, Hexza said “the investment in the equipment provides the company with a good return of its funds compared to placement of funds with financial institutions.”
The second announcement was in March where Hexza said its subsidiary, Norsechem Resins Sdn Bhd (NRSB), would sell off its loss-making manufacturing building and 2.83ha in Klang for RM17mil.
“The board having taken into consideration all aspects of the group’s operation, including the expected future viability, prospects for growth and profitability, decided that it is in the best interest of Hexza Group to discontinue the production of formaldehyde and formaldehyde-based resins of NRSB in Port Klang.”
Based on the latest net book value of the land and property, which stands at RM10.4mil, Hexza stands to gain some RM6.6mil from the disposal, which shall increase the company’s earnings per share by about 3.3 sen for the financial year ending June 30, 2016 (FY16).
Up to the nine months to March 31, Hexza’s net profit stood at RM10.7mil or 5.40 sen per share, compared with a net profit of about RM5mil or 2.50 sen per share for the same period the year before.
It is currently sitting on a cash pile of some RM65mil with zero short-term borrowings.
In FY14, Hexza paid four sen per share in dividends to shareholders, which translates into a yield of about 4% based on the company’s current share price.
Hexza is due to release its results for the whole of FY15 next month.
The firm manufactures formaldehyde-based adhesives and resins, ethanol and organically fermented vinegar, with its products being used for various businesses, including in the manufacture of plywood, particle boards and medium-density fibre boards, and the pharmaceutical, cosmetic as well as the food and beverage industries.
It also has a property segment where it is looking to embark on “boutique and mixed development” works.
In its latest annual report, Hexza said “despite the many uncertainties, we believe that our emphasis on quality, supply chain management, financial and budgetary improvements have served us well and allowed our products to remain competitive.”
It said the board had been “quite conservative” in the approach to expansion and diversification and will adopt a “more aggressive but studied” approach in growing its top and bottom lines, moving forward.