PETALING JAYA: There could be more mergers and acquisitions (M&As) by Hextar Global Bhd to raise its earnings profile following its acquisitions of Chempro Group of Companies for RM138mil.
Hextar’s management had indicated M&As as a route for stronger earnings growth for the agrochemical company.
The purchase of Chempro – a multinational hygiene specialty cleaning chemicals expert – is an earnings-accretive deal and will see Hextar diversifying its earnings base in the chemical space.
This is because it comes with a profit guarantee of RM39mil over three years which translates to a profit after tax of RM13mil a year until the end of 2023.
PublicInvest Research is positive on the deal that comes at about 11 times earnings multiple or a discount to industry average of 18 times.
The research firm said while it kept its “earnings estimates and target price of RM1.30 unchanged pending completion of the transaction, valuation could potentially rise to RM1.62 post-consolidation of Chempro’s earnings”.
“Our ‘outperform’ call is affirmed with a 20 times multiple to earnings which we deem appropriate given the potential (and expectedly stronger) earnings growth from more, acquisition activities yet to be fully accounted for, and management’s ability to deliver, ” said PublicInvest in a report yesterday.
Funding of Chempro will be through a combination of internally-generated funds and borrowings of RM100mil.
With RM17.3mil cash and net gearing ratio of only 0.19 times as at Dec 31,2020, Hextar has ample scope to fund this and other potential acquisitions.
Approval from shareholders is also unlikely to be an issue given the earnings-accretive nature of this transaction, it added.
According to an analyst, Chempro can provide the specialty chemicals used for rubber glove production to rubber gloves companies such as Rubberex Corp (M) Bhd and others in the country and region.
Hextar and Rubberex have a link whereby the major shareholder of Hextar, Datuk Ong Choo Meng is also the largest shareholder of the rubber glove manufacturer.
Ong emerged as Rubberex’s single largest shareholder In April last year when the Covid-19 outbreak was driving up demand for glove products.
“There will continue to be demand for rubber gloves because of Covid-19 and the vaccination drive around the world, which in turn will benefit specialty cleaning chemicals companies like Chempro, ” he added.
The food and beverage and services-related sector like hotels are also expected to use a larger amount of specialty chemicals for cleaning and disinfecting due to the standard operating procedures.
The acquisition of Chempro is expected to be completed by August this year.
Shares of Hextar ended three sen higher at RM1.26 yesterday.