Techbond Can Leverage From PPB’s Extensive Reach

PPB Group has acquired a 15% stake in Techbond (TECHBND) for RM38 million in cash, reflecting a strategic move following the sale of its adhesive unit, Malayan Adhesives and Chemicals Sdn Bhd (MAC), to TECHBND earlier this year. Despite the negligible immediate earnings impact, this acquisition signals PPB’s confidence in TECHBND’s growth potential. Kenanga Investment Bank maintains its OUTPERFORM rating for PPB, with a target price of RM17.50.

PPB acquired 82.4 million shares and 34.1 million warrants in TECHBND from controlling shareholder Sonicbond Sdn Bhd, maintaining a 15% stake post-full conversion of outstanding warrants, increasing PPB’s total cash outlay to about RM49 million. Sonicbond’s stake in TECHBND will decrease from 55% to 44% after full warrant conversion.

This deal follows TECHBND’s acquisition of a 99.57% stake in MAC from PPB for RM57 million in February 2023, expanding TECHBND’s wood-based adhesive coverage to include timber panels like chipboards. TECHBND now derives 70% of its revenue from exports to over 30 countries across Asia-Pacific, Europe, and Africa, with a growing presence in the fast-moving consumer goods (FMCG) sector, supplying adhesives for water-resistant labels, cigarette boxes, and carton packaging.

TECHBND’s strength lies in its focus on industrial adhesives and sealants, with an emphasis on R&D to develop most products in-house under eight proprietary brand names. The company manufactures in Malaysia (Shah Alam) and Vietnam (Binh Duong), where a polymerisation plant was added in 2021 to improve margins.

PPB’s acquisition is considered earnings accretive, with the 15% stake acquired below Kenanga’s target price of RM0.50 per TECHBND share. This valuation is based on a fully diluted CY25F EPS of 3.7 sen, aligning with the forward PER of international peers such as H.B. Fuller Co., Henkel AG & Co., and 3M Co. Despite TECHBND’s smaller size, its specialised business and niche market exposure justify this valuation.

TECHBND benefits from PPB’s extensive regional operations, particularly in China and India, and its global network. PPB’s strong financial position, with net cash of RM734 million, comfortably supports this acquisition. The deal is seen as a vote of confidence in TECHBND’s prospects.

Kenanga maintains PPB’s target price at RM17.50 based on a 16x FY25F PER, reflecting the average for a larger capitalised integrated plantation PER minus a 15% holding company discount. PPB trades at 0.9x FY24F PBV, with no adjustment to the target price based on a 3-star ESG rating.

PPB’s investment case remains robust due to its strong position in consumer essentials such as flour, feed, ready-to-eat products, and mass entertainment in ASEAN. Additionally, its investment in Wilmar International provides exposure to the growing consumer markets of China and India. The OUTPERFORM rating is maintained.

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