Better second half forecast for Texchem Resources
In a report, RHB Research said such factors would support operating leverage for the diversified group with a focus on polymer engineering.
According to the research house, the group's first half earnings came in below expectations due to weaker performances in the industrial and food segments.
For the first half of this year (1H25), core earnings came in at RM4.3mil compared with 1H24, meeting 26% of RHB Research's full-year forecast.
The research house noted the group's current six times price-earnings valuation is undemanding and does not reflect the prospects for a recovery.
RHB Research said year-on-year, revenue for 1H25 fell 0.6% to RM566.8mil on the back of weaker earnings from the industrial segment because of reported price dumping by China.
The food division's earnings were also down 11.1% amid softer global fishmeal prices.
'That said, 1H25 earnings before interest, taxes, depreciation, and amortisation margins expanded 1.7 percentage points to 8.5%, supported by stronger contributions from polymer engineering and improving margins for the restaurant division,' the research house said.
Quarter-on-quarter (q-o-q), revenue increased 0.7% in the second quarter to RM284.4mil, driven by continued recovery in polymer engineering and seasonally stronger sales in the restaurant segment.
But profit for the same quarter fell 7.9% q-o-q to RM2.1mil mainly dragged by challenging operating conditions in Myanmar, which affected the food division.
The group operates a seafood processing factory established in Myanmar in 2003 to process fresh seafood harvested from the Andaman Sea.
Besides that, it also own local seafood factories to process domestic seafood landings.
However, the ongoing civil war in Myanmar has weighed on the economy.
Meanwhile, the research house said the polymer business is expected to benefit from the ongoing recovery in the hard disk drive and semiconductor industries, with continued growth from medical life science customers.
'Several new high-margin projects are gaining traction, and more are in the pipeline, supporting margin improvements and operating leverage,' RHB Research said.
It added that for the food segment, management is looking to refresh menus and expand into suburban locations, which tends to deliver stronger margins.
The appreciation of the ringgit is also likely to help ease raw-material price.
However, the research house cautioned that external pressures that will be hard to mitigate will include the industrial segment's weaker demand due to price dumping by China.
'The food division has diversified its supply chain to Thailand since FY24 to manage the impact of foreign exchange controls, and management remains hopeful on gradual easing of those restrictions,' it said.
RHB Research said it was downgrading its FY25 to FY27 earnings for Texchem by 14%, 5%, and 5%, respectively, after lowering its margin assumptions for the industrial and food segments.
'Consequently, we lower our target price to RM1.37 which implies a blended 11.2 times forecast FY25 price-earnings multiple. Key risks include weaker-than-expected sales and orders and fluctuations in chemical prices.'
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