RHB Investment Bank Bhd (RHB Research) has reiterated its BUY call on Texchem Resources Bhd with a target price of RM1.58, representing a 92% upside and a potential yield of about 6%. The research house reported the group’s first-quarter results were in line with expectations, and they remain optimistic about an earnings rebound backed by volume recovery and contributions from new high-margin businesses.
For the first quarter of FY25, Texchem posted a core profit of RM2.3 million, reversing a loss of RM1.3 million in the same period last year. The result made up 13% of RHB’s full-year forecast, which the analysts deemed acceptable given anticipated improvements in seasonality and operating leverage across all segments. Revenue for the quarter rose 2.5% year-on-year to RM282.4 million, supported mainly by a 25.5% surge in the polymer engineering business, while the industrial, food, and restaurant segments remained relatively flat.
Quarter-on-quarter, revenue improved by 5.9% as volume recovered across most business lines, although the restaurant division faced weaker demand due to the Ramadan period. Despite this top-line growth, core profit dropped 67.6% from the previous quarter, as seasonality and foreign exchange losses weighed on earnings. Unrealised FX losses for the period amounted to RM1.4 million.
Looking ahead, RHB expects the polymer engineering division to continue its uptrend, driven by demand from the hard disk drive and semiconductor sectors, as well as steady growth from medical and life science clients. New high-margin businesses are also expected to boost performance. The analysts noted that Texchem has no direct exposure to the US and is therefore insulated from potential tariff risks, including those posed by Donald Trump’s proposed reciprocal trade policies.
In the industrial segment, the analysts expect continued gains from Texchem’s focus on bulk chemicals, leading to increased sales and market share. Meanwhile, the food business has diversified its sourcing to Thailand to counter FX controls, with management optimistic about a gradual easing of those restrictions. As for the restaurant arm, the company plans to optimise operations by enhancing menus, expanding into more profitable suburban markets, and closing weaker-performing outlets. Better seasonal demand is also expected to lift results in coming quarters.
RHB is maintaining its earnings forecasts and valuation for Texchem, with its RM1.58 target price based on a blended forward P/E of 11.1 times and incorporating no ESG premium or discount. Analysts highlighted key downside risks, including rising input costs, weaker sales or order volumes, chemical price volatility, and unfavourable currency movements. The group is also expected to resume dividend payouts in FY25, following its earnings recovery and the settlement of RM102.2 million for the 28% stake in Sushi King acquired in 2022.
