KUCHING: Newly listed Techbond Group Bhd (Techbond) who was the last company to join the ranks of the Bursa main board in 2018 has received a buy call from analyst Rakuten Trade Sdn Bhd (Rakuten Trade) who reckoned that the stock is now trading at attractive levels.
In an investment idea report, Rakuten Trade detailed that the only Malaysian listed industrial adhesive and sealant manufacturer had seen its share price previously surging to a high of RM1.02 but has since corrected to an attractive level, opening at 77 sen yesterday morning.
“Hence we are calling a buy with a target pirce (TP) of RM1.03 based on 13-fold price earnings ratio financial year 2020 (PER FY20) as per the higher range amongst small cap index,” said the report.
Justifying this call, the report detailed that Techbond currently enjoy respectable net profit margins of about 15 per cent with facilities located in Shah Alam, Malaysia and Vietnam where their industrial adhesives are predominantly used in woodworking, followed by paper packaging.
Its applications are also used in book binding, consumer products, building and construction, and automotive industries with major clients having mostly long-term relationships of 7 to 14 years.
“Techbond’s financial strength remains sound as they are in net cash position with funds raised from its IPO are used for plant expansion which will see continued growth for the next couple of years.
“As at 2QFY18, it has RM67.5 million in cash, or RM0.29 per share.”
In terms of expansion, the group has earmarked RM5.9 million for its Shah Alam plant expansion that is expected to be operational by 3Q19, while RM28.8 million has been allocated for an additional factory in Vietnam that is expected to commence in 2Q20 for the production of polymers, a key material for adhesive.
“Current capacity of 21,372 metric tonne is expected to reach 33,914 MT by 2020 and the new polymer capacity of 4,628 MT from Vietnam will reduce dependencies from external suppliers amidst improving margins.
“We remain positive on their prospects and estimated earnings per share to grow by 30 per cent for FY2020 as their capacity expansion is driven by rising demand in Vietnam,” detailed the analyst.