PETALING JAYA: TMK Chemical Bhd
’s proposal to acquire a 100% equity interest in Chemical Company of Malaysia Bhd (CCM) for RM920mil is being viewed favourably by analysts.
CCM is a wholly-owned subsidiary of Batu Kawan Bhd, and a successful acquisition would make TMK Chemical the second largest shareholder with at least a 20% interest.
In a report, TA Research said the proposal could be a transformative transaction for TMK Chemical.
It said the proposed acquisition will significantly expand TMK Chemical’s scale, broaden its product portfolio and diversify earnings through the addition of CCM’s established industrial chemical manufacturing operations.
“The transaction also appears relatively advanced compared with a typical preliminary merger and acquisition proposal, given Batu Kawan’s acceptance-in-principle and the granting of exclusivity rights to TMK Chemical.” The research house said CCM posted a profit after tax of RM76mil to RM77.6mil in the last two years, implying an acquisition multiple of about 11.9 to 12.1 times earnings.
“Given CCM’s estimated return on equity and net margin of 13.8% and 11.1% respectively, we believe the proposed valuation is reasonable and supported by the company’s consistent profitability and ability to generate double-digit returns,” TA Research said.
However, it also said transaction parameters that remain outstanding, particularly the final funding structure, including the cash-share mix, incremental borrowings and potential dilution arising from the issuance of new TMK Chemical shares.
Better clarity following due diligence and sale and purchase agreement negotiations are expected. With that, the research firm said it makes no changes to its earnings forecasts and will revisit assumptions once further details on the deal become available.
