HEXTAR (5151) – A leading Agrochemical Player in Malaysia
Highlights:
1. Hextar Group is the leading crop management solutions provider domestically with strong presence globally (export to 30 countries). The main business of Hextar Global Berhad is to provide agrochemical products. The Company offers pesticides, fertilizers, and other related specialty chemicals. Hextar Global serves customers worldwide.

2. On 30th April 2019, Hextar had completed the acquisition of the entire equity interest of Hextar Chemicals Limited (products registration increased to 500). In addition, with Biogas Engineering Sdn Bhd acquisition (completed in Nov 2020) complements their offered services (to process industrial organic wastewater, especially from palm oil mill effluent to harvest energy while providing solution to environment concern). In 2020, Hextar Group increased its product registration from 500 products to 600 products.

3. Agrochemical products are considered as high barrier of entry as every product need to go through registration with the Malaysian Pesticide Board under the Pesticide Act 1974 to ensure the safety and quality of the products as they are used in agriculture. Besides, the new product’s development also requires intensive R&D and some products may need to have patents. It is worth noting that to register new product it will take about two years to pass the test (this exclude R&D time, lab test and field test).

4. Currently Hextar Global is the leader in the Malaysian agrochemical market which it accounted for about 28% Malaysia pesticide market share. Management of Hextar has identified a few strategies to increase their market share to 40% by 2023. It would be done through organic growth and mergers and acquisitions.
(Source: https://www.theedgemarkets.com/article/halex-targets-40-agrochemical-market-share-2023-posthcl-buy)

5. During the 4th quarter of FYE2019, Hextar had signed a distributor agreement with Sumitomo Chemical Vietnam Co Ltd for distribution of the Company’s product in Vietnam, which is predominantly active in its agriculture industry. In addition, Hextar Chemicals Sdn Bhd and Halex (M) Sdn Bhd (both are subsidiaries of Hextar) had accepted various tender awards by major plantation companies for supply of agrochemicals in Malaysia, Papua New Guinea and Liberia for forthcoming year.

6. In March 2021, Hextar has announced the acquisition of the entire equity interest in Chempro Group for RM138m, with annual profit guarantee of RM13m over the next 3 years. The pricing of the acquisition at ~11x earnings multiple, a discount to industry average of 18x. Chempro is a multinational hygiene specialty cleaning expert providing niche specialty chemicals products for cleaning, hygiene and food industry as well as rubber glove industry in Southeast Asia.

7. Favorable Market Environment: Global commodity prices (including palm oil which exceeds RM3500 per ton) increase substantially lead to anticipated good agrochemical sales in this year and beyond for Hextar.

8. Hextar is also expanding business in Indonesia due to its well established business network through Hextar Chemical Limited. Indonesia is the largest palm oil producer in the world with many of their palm oil trees (25 years old) need to be replanted.

9. Hextar business is fall within the essential service. Due to the Covid-19 pandemic, the availability and security of food supply from crops are essentially needed for many countries.

10. The growth of global population over the year and rising income are also driving up food demand. The growing food demand comes with limited agricultural land, which provides opportunity for agrochemical products to improve productivity of agriculture through cost-effective methods such as fertilizers and pesticides.

11. Global agrochemical market is huge, estimated to reach 250B in 2021 and may reach 300 billion USD in 2024. It is still growing steadily in the next 5 years as shown in the Figure below.
Figure 1: Global Agrochemical Market size

12. Hextar recorded excellent FY2020 profit (44.5m) performance and it is expected to growth its profit further in FY2021-2023 with rising products demand and coming Chempro acquisition.

13. Healthy balance sheet with high dividend payout ratio (dividend yield of about 3%). Hextar has cash holdings of RM17.3m and net gearing ratio of only 0.19x, giving it ample room to fund the proposed Chempro acquisition which shall drive future earnings growth.

14. Comparatively, HEXTAR's profit margins and valuation are still attractive among its peers. It achieved FY2020 net profit margin of 10.7% as compared to Bursa’s peers (Ancom’s margin 2%, CCM delisted at PE 43x, margin about 4% and Imaspro’s margin 8%).
16. International peers valuation comparison from Japan Sumitomo Chemical PE 60x, Bayer Cropscience PE 51x (listed in India), Bursa’s peer Imaspro PE of 58x and Ancom annualized last 2 quarters PAT PE of 20x (but overall still loss making).

17. Bonus issue: Hextar has announced a 3-for-5 bonus issue, an exercise aimed at rewarding its existing shareholders and may improve liquidity and affordability of its share.
18. Risks: 1. Organic farming: The rise of organic farming might affect Hextar’s business. Actually organic Farming also uses pesticides but they use organic pesticides which these pesticides are produced from some natural substances. 2. Strong USD rate may increase Hextar’s cost due to some raw materials are imported.


Appendix 1: Crop giant Cargill sees tight supplies driving ‘mini supercycle’

(source:https://ceomorningbrief.theedgemalaysia.com/article/2021/0166/World/21/562656#.YG90SyD0yy4.whatsapp)


Disclaimer:
This writing is based on my own assumptions and estimations. It is strictly for sharing purpose, not a buy or sell call of the company and the contents of this report should not be considered as professional financial investment advises or buy/sell recommendations. I strongly encourage you to do your own research and take independent financial advice from a professional before you proceed to invest.
I make no representations as to the accuracy, completeness, correctness, suitability, or validity of any information on my report and will not be liable for any errors, omissions, or delay in this information or any losses and damages arising from its display or usage. All users should read the posts and analysis the information at their own risk and we shall not be held liable for any losses and damages.

Hextar new high

See new player profit margin n their cost, even they dont hv economy of scale like big players which normally cost can be lower.

Value traded for Glove Counters on 26 April (Compiled by Davidtslim)
1. Ruberex = 274m
2. Carepls = 455.9m
3. Comfort = 158m
4. Topglove = 401.5m
5. Supermx = 245m
6. Harta = 169.9m
7. Kossan = 174m
8. HLT = 168m
9. Mahsing = 193.7m

The above explained why glove stocks up, other stocks under pressure as big fund flow to gloves.

Key takeaways of Budget 2022

✳️ RM332.1 billion allocated under Budget 2022, the highest allocation compared with previous budgets

• RM233.5 billion allocated for operating expenditure under Budget 2022

• RM75.6 billion allocated for development expenditure under Budget 2022

• Govt introduces Bantuan Keluarga Malaysia worth RM8.2 billion, to benefit 9.6 million recipients

• Govt to introduce excise duty on liquid, gel-based vaping e-liquids

• RM32.4 billion set aside for Health Ministry, second largest allocation after Education Ministry, with RM2 billion for vaccination expenses and RM2 billion for supplies

• Education Ministry receives the highest allocation in Budget 2022 amounting to RM52.6 billion

• Ministry of Higher Education receives RM14.5 billion allocation in Budget 2022

• Special RM2,500 tax relief for purchase of handphones, computers and tablets

• JaminKerja initiatives to create 600,000 job opportunities with RM4.8 billion allocation

• PTPTN borrowers to get 10-15% discounts, depending on chosen repayment option

• Tax deductions of RM2,000 to RM7,000 for upskilling courses

• RM11.4 billion allocation for Bumiputera empowerment

• Govt to introduce excise duty on chocolate or cocoa, malt, coffee, and tea-based premix drinks containing sugar

• RM150 Early Schooling Assistance for each student; total allocation of RM450 million to benefit 3 million students

• RM400 million allocation for Supplementary Meal Plan (RMT) to ensure students get adequate daily nutrition

• Govt, through the Securities Commission Malaysia, to make it compulsory for public-listed companies to have at least one female director on their boards

• Contracts of 10,000 medical, dental and pharmaceutical officers to be extended from two to four years

• 80,000 job placements in public sector, GLCs to be continued via MySTEP initiative

• eStart cashless transaction scheme to be introduced, which will see one-off RM150 deposited into e-wallets of those aged between 18 and 20

• Govt to fully bear cost of motor vehicle licences for the disabled (OKU)

• Income tax exemptions for winners of eligible e-sports championships

• Tax relief for cost of medical expenses/consultation involving registered psychiatrists, clinical psychologists, counsellors

• EPF to extend reduced minimum contribution rate of 9% until June 2022

• SST exemption for cars extended till June 30, 2022

• Employers to get tax relief and exemptions on cost of boosters shots

• Govt to allocate RM2 billion under housing credit guarantee scheme to assist those without steady income, such as gig economy workers, to purchase homes

• Daily milk program for poor students to be continued with RM400 million allocation

• Real property gains tax removed for house sales from sixth year onwards

• Govt to continue supporting equity crowdfunding and peer-to-peer financing with RM80 million allocation in matching grants under Malaysia Co-Investment Fund, in addition to Bank Pembangunan Malaysia Bhd's RM100 million investment

• Matching grant of RM100 million for Bumiputera SMEs to explore aerospace industry

• SMEs allowed to postpone income tax instalments for six months until June 30, 2022

• Special tax exemption for building/commercial unit owners who give at least 30% rental discount

• RM100 million for smart automation matching grants to benefit 200 manufacturing and services companies

• 600,000 undergraduates from B40 families to get one tablet each, involving allocation of RM450 million

• Govt allocates RM2 billion to continue wage subsidy programme targeting 300,000 workers

• Targeted wage subsidies for employers in tourism industry who have seen their income reduced by at least 30%

• RM85 million for special assistance to over 20,000 registered tour operators

• Income tax exemptions for organisers of artistic and cultural activities, as well as sports competitions and international-level recreational activities, to be extended until 2025

• RM250 million allocated for Shop Malaysia Online and Go-eCommerce Onboarding

• Govt to provide full exemption on import, excise duties and sales tax for electric vehicles

• RM1.7 billion in subsidies, incentives for farming and fisheries industries, including RM1.5 billion in subsidies for seeds and fertiliser

• Bursa to launch Voluntary Carbon Market as voluntary platform for carbon credit trading between green asset owners and other entities

• Windfall profit levy threshold for crude palm oil prices to be increased from RM2,500 per tonne to RM3,000 per tonne for Peninsular Malaysia and from RM3,000 per tonne to RM3,500 per tonne for Sabah and Sarawak. The tax rate for Sabah and Sarawak will also be raised to 3%, in line with the rate in Peninsular Malaysia, when prices exceed the threshold.

• Bank Negara to allocate RM1 billion towards assisting SMEs in adopting sustainable and low-carbon practices

• Govt to issue ringgit-denominated sustainable sukuk of up to RM10 billion, to finance eligible social or nature-friendly projects

• RM700 million allocated to enhance digital connectivity in 47 industrial areas and 630 schools, especially those in rural areas

• SME Digitalisation Grant Scheme to be increased to RM200 million in 2022, with RM50 million for Bumiputera micro entrepreneurs in rural areas

• RM20 million to be allocated to each state for projects related to food security, tourism, and nature conservation

• 1.3 million civil servants Grade 56 and below to get RM700 special financial aid each; 1 million govt retirees to get RM350 each, altogether to involve RM1.3 billion allocation

• Govt to introduce Cukai Makmur, a special tax on a one-off basis to companies generating high profits. The first RM100 million in taxable earnings will be taxed at 24% while the remainder will be taxed at 33% for the tax assessment year of 2022

• Sales tax to be imposed on low-value items sourced overseas that are sold by online sellers and sent to Malaysia via air courier

• Services tax to be imposed on delivery services provided by service providers including e-commerce platforms, except for food and beverage deliveries and logistics services

• Govt to allocate RM6.6 billion for various initiatives under relevant ministries and agencies to strengthen and enhance technical and vocational education and training (TVET). RM200 million is also allocated for programmes such as the National Dual Training System and industrial certification programmes

• Income tax exemption of up to RM3,000 for nursery and kindergarten fees