TMK Chemical Berhad (TMK, 5330) is a leading player in total chemical management, terminal services, and inorganic chemical manufacturing, catering to industries like agriculture, healthcare, and construction. 60% of the IPO proceeds is allocated for expansion as the company anticipates strong demand going forward. As such, we project net earnings of RM117.2m-RM132.3m for FY24-FY26. BUY with a FV of RM2.03 based on a PER of 16x (regional peers average) over FY25 EPS.

TMK operates 15 facilities, 2 chemical terminals, and 1 manufacturing plant strategically located in Southeast Asia. The company serves a broad range of industries, supported by its logistics fleet, which includes lorries and tankers. TMK also offers direct chemical transport via pipelines to nearby clients.

TMK is investing significantly to bolster its operations. It has allocated RM90.2m to expand Banting Plant 1 which currently has an annual capacity of 37,000 ECU, 216,000MT of sodium hydroxide, to 432,000MT. A new chemical processing facility in Singapore, costing RM49.5m, is also planned to support the company’s growth in the region. Additionally, RM99.1m is earmarked for strategic acquisitions to integrate complementary businesses, improve cost synergies, and enhance its market presence in inorganic chemicals. TMK aims to leverage on its expanded manufacturing and processing capabilities to reduce reliance on third-party suppliers and strengthen its value chain. Also, the company plans to explore advanced digitization and automation initiatives to improve operational efficiency. TMK also seeks to expand its customer base and geographical footprint through targeted marketing and partnerships in high-demand regions.

The global chemical industry is set for steady growth, fuelled by rising demand from key sectors like construction, healthcare, and agriculture. Sustained demand for inorganic chemicals and Southeast Asia's industrial growth, backed by supportive policies, create a favourable environment for TMK's expansion.

We are cautious of TMK’s high net gearing of 1.6x as of 1HFY24. With 13% of the IPO proceeds allocated to reduce bank borrowings, coupled with an increase in shareholders’ capital and stronger net earnings expected in FY24, we anticipate net gearing to decrease to around 0.4x post-FY24. The company has a dividend policy of a 30%- 50% payout ratio, and we expect a payout ratio of 40% for FY24- FY26, translating into yields of between 2.7% and 3.0%.

Source: Rakuten Research - 9 Dec 2024

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