Hextar Industries is looking to acquire the entire equity interest in Hextar Fertilizers Limited from Hextar Holdings Sdn Bhd for a total purchase consideration of RM480 million as the group seeks to tap into the expected growth in demand.
The Proposed Acquisition will enable the HIB Group to immediately increase its existing production capacity from 75,000 metric tonnes per annum to an aggregate of 679,000 metric tonnes per annum. The Proposed Acquisition will also allow HIB Group to tap into HFL Group’s extensive distribution network throughout Malaysia to expand its distribution base. The HFL Group comprises HFL which holds 100% equity interest in Hextar Fertilizers Group Sdn Bhd which in turn holds 100% equity interest in Hextar Fert Sdn Bhd, Hextar Solutions Sdn Bhd, and PK Fertilizers Sdn Bhd. The Group is principally involved in the manufacturing, formulation, distribution, and trading of a wide range of fertilizers as well as providing services
such as crop management solutions, professional agronomic advisory and consultation services, in-house product development, and manufacturing of bulk blends and customisation of various formulation of fertilizers. HFL Group’s manufacturing facilities are located in Pasir Gudang (Johor), Telok Gong (Selangor), Lahad Datu (Sabah) and Bintulu (Sarawak).
Based on the market research undertaken by Protégé Associate Sdn Bhd, the market size of the fertiliser industry in Malaysia is forecast to surge from RM4.72 billion in 2021 to RM6.37 billion in 2022 and expand at a compounded annual growth rate (“CAGR”) of 14.3% to reach RM9.20 billion in 2026. Growth in demand is expected to be driven by rising commodity prices of industrial crops as well as the Government’s interest in the development of the industrial crops sectors, namely the palm oil and rubber industries, as well as the attainment of self-sufficiency in major food commodities.
The purchase consideration of RM480.0 million will be wholly satisfied through the issuance of 1,600,000,000 new ordinary shares in HIB at an issue price of RM0.30 per Consideration Share. HHSB has given a profit guarantee of an aggregate of RM94 million over 2 years. Accordingly, the implied multiples computed based on the average profit guarantee of RM47.0 million per annum translates to an implied price to earnings (PE) multiple of 10.21 times and an implied enterprise value over earnings before interest, tax, depreciation and amortisation (EV/EBITDA) multiple of 9.53 times.
As HHSB is currently the major shareholder of HIB with a shareholding of 45.7%, the issuance of the Consideration Shares will result in HHSB’s shareholdings increasing to 77.3%, an increase of more than 2% in the Company.
Commenting on the Proposed Acquisition, Dato’ Chan Choun Sien, the Independent NonExecutive Chairman of HIB said “The fertilizer business is a very competitive industry and we need scale to be able to compete effectively. The HFL Group’s fertilizer operations is significantly larger than HIB Group’s current operations and will provide us with access to an established distribution network and manufacturing facilities within Peninsular Malaysia and East Malaysia as well as enable us to expand deeper into Sarawak, which the HIB Group is currently serving.
