KUALA LUMPUR: Public Investment Research has retained its 'neutral' call on Hextar Global Bhd given near-term operational challenges in light of the company's weaker first half performance due to weaker selling prices of key herbicides.
The research house said Hextar Global's customers are adopting a "wait-and-see" attitude in anticipation of the lower selling prices.
Hextar Global reported another sequentially stronger quarter, albeit marginal, with a 2QFY23 net profit of RM9.2 million, though notably weaker YoY due to lower sales and higher finance costs.
"Cumulative 1HFY23 net profit of RM19.3 million is currently below estimates at 33 per cent of our full-year numbers, though we continue to keep earnings estimates unchanged on expectation of a return to normalcy in 2H2023," said the research house in a note today.
While longer-term prospects in the plantation industry and the continued application of agrochemicals remain encouraging, complemented by its exposure in the specialty chemicals space, we retain our Neutral call on the stock given near term operating challenges.
Our PE-based target price is unchanged at RM0.63.
Hextar Global recently announced the acquisition of various companies via 51 per cent owned Hextar Fruits for RM84 million in cash, in efforts to diversify its business away from the vagaries of the industrial and specialty chemical space.
The various acquisitions will see the company involved in the trading of durian and wholesale of fruits, it added.
"While the potential is attractive, we are neutral on the development of its vast market in China which it aims to penetrate into.
Costing a trailing price-earnings ratio of nine times, the acquisition is earnings and value accretive, though we are on the side of conservatism and kept estimates unchanged at this juncture," said the research house.
Management expects this new segment to potentially contribute 25 per cent or more to the group's net profit.
Public Investment Bank maintains a 'neutral' call on the stock given near term operating challenges with a target price unchanged at 63 sen.
Hextar's share price declined by 0.66 per cent to 75 sen earlier.