TECHBND: Adhesives Specialist Poised for Growth on Strategic Moves, Strong Outlook

Leading adhesives and sealants specialist is set for significant growth, according to a recent research report by TA Securities, which initiated coverage with a “BUY” rating and a target price of MYR0.42, implying a 35% upside potential and an approximate 4% FY26F yield. Despite recent revenue contraction, the company’s strategic initiatives, robust cost efficiencies, and expanding market reach are expected to drive a strong rebound in earnings.

Performance Review

The company experienced a 3% year-on-year decline in FY25 revenue, reaching MYR146.5 million. This was primarily attributed to the normalisation of average selling prices (ASPs), a stronger Malaysian Ringgit, and supply disruptions that impacted its Malayan Adhesives and Chemicals (MAC) subsidiary in 4QFY25. The fourth quarter itself saw a 9% quarter-on-quarter and 12% year-on-year revenue contraction to MYR34.1 million, with core earnings for the quarter falling 32% quarter-on-quarter to MYR3.0 million.

Despite these headwinds, the company maintained a relatively stable gross profit margin of 27% for the full year, a testament to its disciplined cost management and upstream integration benefits. Furthermore, the group continues to boast a strong net cash balance sheet, recorded at MYR104.8 million.

Strategic Advantages and Efficiency Gains

A key driver of future profitability is the successful integration and restructuring of MAC, acquired in 2023. This acquisition has transformed the company into a comprehensive adhesive solutions provider, unlocking cross-selling opportunities and expanding its market footprint. Management’s efforts to streamline MAC’s operations, including discontinuing low-margin product lines and enhancing operational expenditure efficiencies, are expected to contribute significantly to earnings going forward.

The scaling up of its polymerisation plant in Vietnam also represents a crucial competitive advantage. This facility provides upstream access, reduces reliance on external raw material suppliers, and allows for stringent quality control, leading to improved product consistency and customer stickiness. The company’s niche specialisation, integrated business model, and strong emphasis on research and development further solidify its market position, with exports contributing approximately 60% of total revenue across over 30 countries.

Future Outlook and Growth Drivers

The outlook for the company remains positive, with TA Securities forecasting a core earnings Compound Annual Growth Rate (CAGR) of 11.2% for FY26-28. Revenue is projected to grow by 12% year-on-year in FY26 and 10.3% year-on-year in FY27. Core net profit is expected to rise by 22.4% year-on-year to MYR20.7 million in FY26, followed by a 10.9% and 11.4% increase in FY27 and FY28 respectively.

This growth is anticipated to be driven by a double-digit expansion in the adhesives segment, benefiting from a low FY25 base, alongside continued operational efficiencies from the MAC restructuring. Expansion into new export markets, including New Zealand and Russia, and ongoing discussions with potential Chinese customers for contract production, are also expected to fuel revenue. Additionally, the re-shoring of US furniture production to ASEAN countries due to tariffs could present a significant tailwind for adhesive demand.

Key Risks

While the growth trajectory appears robust, several risks warrant attention. These include exposure to foreign exchange volatility, given that around 60% of revenue is denominated in USD. Fluctuations in raw material prices, potential operational disruptions (such as energy supply issues previously experienced), intense competitive pressure in the global adhesives market, and regulatory policy changes (e.g., tariffs) could impact performance. Furthermore, execution risks related to scaling new polymer sales and onboarding new customers in major markets could affect forecasted earnings.

Investment Recommendation

Given its strategic growth initiatives, strong market positioning, and promising earnings outlook, TA Securities maintains a “BUY” recommendation for the stock, reiterating its confidence in the company’s ability to capitalize on market opportunities and deliver value to shareholders.