TENAGA: Chemical Sector Player Posts Strong Sequential Earnings, Driven by Cost Savings and Expansion
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
An integrated chemical solutions provider has demonstrated significant operational improvements, with its core profit after tax and minority interest (PATAMI) surging 29% sequentially in the third quarter of 2025 (3Q25). This strong performance was primarily driven by enhanced operational efficiency, higher average selling prices (ASPs), and a robust strengthening of regional demand across Malaysia, Singapore, and Vietnam. The company’s gross profit margin notably improved by two percentage points, rising to 21% in 3Q25 from 19% in 2Q25.
Cost Efficiencies and Strategic Growth
A key factor contributing to the improved margins is the substantial cost savings anticipated from new electricity tariffs. Beginning July 2025 and extending through December 2027, these tariffs are expected to generate monthly savings of approximately MYR700,000, translating to an annual saving of MYR8.4 million. This represents a significant 6-7% of the projected FY26F-27F earnings, providing a structural cost advantage and enabling the group to maintain better margins and expand its market footprint, particularly in cost-sensitive markets like Singapore.
Looking ahead, the company is poised for a three-year earnings Compound Annual Growth Rate (CAGR) of 16%, with net profit forecasted to reach MYR138 million by FY27F. This growth is underpinned by several strategic initiatives and favourable market conditions. One major driver is the expansion of rare earth processing capabilities, notably Lynas Rare Earth’s new separation facility, which is set to increase processing capacity by 50% and begin samarium production by April 2026. As Malaysia’s second-largest one-step chlor-alkali producer, the company stands to benefit significantly from the increased demand for chemical-intensive processing, with an estimated MYR10-15 million per annum in incremental revenue from hydrochloric acid (HCl) alone.
Future Outlook and Market Dynamics
Further bolstering its manufacturing capacity and earnings potential, the company’s Banting Plant 2 is slated for commissioning by 4Q26. This new facility is expected to double the manufacturing capacity to 432,000 tonnes per annum and is projected to contribute 7-10% of FY27F earnings. Meanwhile, the company continues to maintain a healthy net cash position of MYR81 million as of 9M25, supported by improving operating cash flows.
The regional market outlook remains sanguine. Vietnam’s real estate market is undergoing a structural stabilisation, driven by the clearance of legal bottlenecks and the reactivation of stalled projects. With a projected 2026 GDP growth target of 10%, this recovery is expected to significantly contribute to the company’s performance, particularly given its role as a major soda ash provider to the glass-making sector in Vietnam. Additionally, industrial activity in Singapore is forecast to remain resilient, supported by easing tariff risks and sustained demand across both electronics and non-electronics segments.
Despite a year-on-year decline in core PATAMI for 9M25, primarily due to lower sales volume, the sequential rebound and strong underlying drivers point to a robust trajectory. The investment bank maintains a “BUY” recommendation for the stock, setting a target price of RM0.25, representing an upside of 25.0% from its last traded price of RM0.20.
