TEXCHEM: Strategic Stake Disposal Unlocks Value, Strengthens Financials
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A recent strategic move by the company is set to bolster its financial position and unlock significant value from its food division. The firm announced the disposal of a 34% stake in its wholly-owned subsidiary, Sea Master Food, to Yamae Global Co of Japan for MYR14.9 million in cash. This transaction, expected to conclude by the fourth quarter of 2025, is viewed positively by analysts.
Disposal Details and Rationale
The stake sale involves Wilpack Food Services, a subsidiary, and the proceeds are primarily earmarked for a MYR10 million special dividend for shareholders and MYR4.6 million for debt repayment. The special dividend is expected to offer an attractive prospective yield of approximately 13%, while the debt repayment will marginally reduce the company’s gearing from 0.81x to 0.79x.
Analysts highlight that the deal effectively crystallises the value of the food business at attractive multiples. The implied valuation for Sea Master Food stands at approximately MYR43.9 million, translating to 3.4x FY24 price-to-book and 38x FY24 price-to-earnings. This valuation alone accounts for 55% of the group’s current market capitalisation. Furthermore, the partnership with Yamae Global, a diversified food trading conglomerate, is anticipated to significantly strengthen Sea Master Food’s procurement capabilities, enhance supply chain efficiency, and provide international market access, thereby supporting the longer-term expansion of the food division.
Financial Implications and Outlook
Despite the positive operational developments, the investment bank has made no changes to its FY25-27 earnings forecasts. This is primarily because anticipated interest cost savings from debt repayment are expected to be offset by higher minority interest following the stake disposal. However, the FY25F dividend assumption has been adjusted to reflect the announced MYR10 million special dividend.
Key Risks and Recommendation
Key risks identified include weaker-than-expected sales and orders, and fluctuations in chemical prices.
The investment bank maintains a “Buy” recommendation on the stock, with a target price of MYR1.37. This target price implies a blended FY25F Price-to-Earnings ratio of 11.2x.
