TEXCHEM: Operational Efficiencies Drive Earnings Resilience Amidst Market Headwinds

The company demonstrated operational resilience, with its third-quarter core earnings showing significant sequential improvement, despite a challenging nine-month period. While 9M25 core earnings of MYR7.8 million, representing an 86% year-on-year increase, fell short of full-year forecasts, this was primarily attributed to softer performances within the industrial and food segments, compounded by a higher-than-expected effective tax rate of 48%.

Performance Review

In the third quarter of 2025, revenue saw a marginal decline of 3.1% quarter-on-quarter and 1.8% year-on-year to MYR276 million. However, core Profit After Tax And Minority Interest (PATAMI) sharply improved by 50% quarter-on-quarter to MYR3.4 million. This robust sequential improvement was largely fueled by enhanced restaurant profitability, which successfully offset order delays in the Polymer Engineering (PE) division and foreign exchange headwinds impacting the food segment.

The industrial division experienced weakness due to ongoing price competition from Chinese manufacturers, while the food segment faced headwinds from lower volumes and fishmeal prices. Conversely, the PE division proved a significant contributor to profitability, alongside the better-than-expected turnaround in the restaurant business.

Future Outlook and Strategy

Looking ahead, the investment bank anticipates a sustainable recovery trend extending into the fourth quarter of 2025 and through fiscal year 2026. This recovery is expected to be underpinned by robust growth in the semiconductor, data centre, and data storage memory segments. The high-growth PE division is particularly well-positioned to benefit from increasing demand for material supply in automated transport equipment, aligning with the broader semiconductor industry’s technological roadmap.

While the industrial division continues to grapple with pricing pressures, management is strategically pivoting towards higher-value products and expanding into downstream opportunities within the medical and semiconductor markets. The food division plans to mitigate foreign exchange risks by diversifying production bases and product offerings. Despite these strategic moves, forecasts for FY25F-26F earnings have been adjusted downwards by 14.8-8.8% to account for persistent weaknesses in the industrial and food divisions and an elevated tax rate.

Investment Recommendation

Despite the adjusted forecasts, the company is seen as offering compelling value at its forward price-to-earnings multiple, supported by its unique exposure to the polymer engineering segment and improving overall group profitability. Given its strategic initiatives and anticipated recovery, the investment bank reiterates a BUY recommendation.