5 January 2022 $TEXCHEM / 8702 (TEXCHEM RESOURCES BERHAD) Teaser

Texchem Q3 FY 2021 Review Update with indicative valuation above RM1.60

The recent share price holding up with the volume transacted could be indications of something brewing in Texchem. Looking at the vibrant business of Sushi Kin in its outlets, make us relook at Texchem. Given the huge customers dinning in at Sushi Kin Outlets in Klang Valley and other major shopping malls, we would expect the Restaurant Division to turn positive post MCO for Q4 2021.

Historically Q4 and Q1 with school holiday and festive seasons have been its Restaurant Division traditional peak and strong qtr. In Q3 and Q4 2020, the restaurant PBT was RM7 mil and RM6.069 mil respectively post MCO in 2020. We are not in position to subscribe a valuation until Q4 2020 result is out to have a better judgement due to reasons explained below.

Our preliminary indicative valuation is above RM1.60 using proforma approach below. We did a proforma adjustment to Q3 2021 result assuming if Restaurant Division can achieve the profit level like Q3 2020 of RM7 mil and the adjusted “proforma” PBT looks compelling to look at Texchem and could it be a GEM being polished now?????

Just to recap, our initial analysis on 4 May 2021 stating Overdue for RERATING and drawing Institution Investors interest and Mr Market recognition with its FY 2020 Q3 and FY 2020 Q4 and FY 2021 Q1 reporting 3 quarters of continuous impressive profits and confirming its successful turnaround per attached Excel workings.

Business turned negative with the imposition of MCO in late May 2021 affecting Restaurant Business till recent opening in October 2021. Similarly, its Vietnam operations for industrial chemical trading and polymer engineering business for E&E like Apple Iphone and other technology sectors were affected due to strict MCO shutdown for 2 months.

The performance of Texchem is still depending on the turnaround of its Restaurant Division given the post MCO. In Q3 2021 the restaurant Division reported a loss of RM5.8 mil. However, if the Division turnaround to RM7 mil profit (this is the amount of profit the Division made in Q3 FY 2020), the Group ADJUSTED PBT in Q3 2021 would be RM14.285 mil (PBT reported 1.485M +7.0M+5.8M which was Q3 2021 loss of Restaurant Div). The proforma ADJUSTMENT is to show you what if scenario which is possible should restaurant Division turn positive post MCO.

Above adjusted PBT would confirm our earlier opinion that the Group had turnaround if not for the MCO from May to early Oct this year badly affecting Restaurant Division business.

After Q3 announcement, we did cautious that we have observed both the Industrial and Polymer Engineering Division have declining Turnover and PBT since Q4 2020 which we subsequently determined was due to MCO in Malaysia and Vietnam. Thus, if you are holding Texchem shares, just hold.

The Group recorded revenue of RM763.5 million and pre-tax profit of RM10.2 million in YTD Q3 2021 against revenue of RM747.5 million and pre-tax loss of RM14.1 million in YTD Q3 2020. The EPS for YTD 30 Sept 2021 is 6.8 Sen

In Q3 2021, the Group achieved lower revenue of RM235.6 million (Q3 2020: RM287.6 million) and pre-tax profit of RM1.5 million (Q3 2020: pre-tax profit of RM12.8 million) due to the various factors as explained in the respective operating business segments.

Industrial Division

The Industrial Division (chemical trading and distribution) achieved a lower revenue of RM125.0 million in Q3 2021 (Q3 2020: RM131.9 million) and a lower pre-tax profit of RM2.8 million in Q3 2021 (Q3 2020: pre-tax profit of RM3.8 million) mainly due to the stricter restrictions and lockdowns imposed in Malaysia as well as in Vietnam whereby customers’ factories were temporarily shuttered or operated at lower capacities.

The Q2 2021 turnover was RM142.189 mil with PBT was RM3.915 mil. In Q1 2021 the turnover was RM135.839 mil with a PBT of RM3.553 mil. The Q4 2020 revenue was RM122.18 mil with PBT of RM3.913 mil

We are seeing a declining qtrly profit from Q4 FY 2020 to current Q3 FY 2021 with current Q3 2021 being the worst qtrly performance since Q2 June 2020 due to above explanation.

Polymer Engineering Division

The Polymer Engineering Division achieved lower revenue of RM55.0 million in Q3 2021 (Q3 2020: RM60.1 million) and lower pre-tax profit of RM3.7 million in Q3 2021 (Q3 2020: pre-tax profit of RM4.5 million) attributable to the stricter lockdowns and capacity restrictions in Malaysia and Vietnam to curb the spread of Covid-19

The Q2 2021 turnover was RM56 mil with PBT was RM4.491 mil. In Q1 2021 the turnover was RM53.6 mil with a PBT of RM5.172 mil. The Q4 2020 revenue was RM61.8 mil with PBT of RM6.069 mil

Restaurant Division

The Restaurant Division recorded revenue of RM135.7 million (YTD Q3 2020: RM166.8 million) and a pre-tax loss of RM12.0 million (YTD Q3 2020: pre-tax loss of RM21.3 million) in YTD Q3 2021 impacted by the longer period of dine-in restrictions from the various movement control orders imposed in Malaysia to curb the spread of Covid-19 while improved cost management has contained the pre-tax loss.

Food Division

The Food Division recorded a lower revenue of RM60.6 million (YTD Q3 2020: RM112.3 million) and a pre-tax profit of RM2.4 million (YTD Q3 2020: pre-tax profit of RM2.9 million) in YTD Q3 2021 due to the impacts of the disruptions in commercial shipping logistics and the Covid-19 pandemic situation in Myanmar.


Financial Information
Share Price 115 Sen
Market Capital (RM): 124.19 m
Number of Share: 120.571m
EPS (cent): 10.11 *
P/E Ratio: 11.37*

*We have used 4 quarters rolling EPS (with Q4 2020 adjusted down to core profit)





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