This article first appeared in Capital, The Edge Malaysia Weekly on December 9, 2024 - December 15, 2024

THE listing of TMK Chemical Bhd (KL:TMK) on the Main Market of Bursa Malaysia will take place on Thursday, Dec 12.

At an initial public offering (IPO) price of RM1.75 per share, TMK — which specialises in chemical management and storage solutions — will have a market capitalisation of RM1.75 billion upon listing and a price-earnings ratio (PER) of 19 times its earnings for its financial year ended Dec 31, 2023 (FY2023).

The IPO comprised the issuance of 220 million new shares to raise RM385 million. The offer received 14,739 applications for 305.55 million shares worth RM534.71 million from the Malaysian public, reflecting an oversubscription rate of 14.28 times.

TMK operates 15 facilities and two terminals across Malaysia, Singapore and Vietnam, serving a diverse range of customers including industrial and trading companies, manufacturers and distributors in various sectors. It exports to 26 countries, primarily in Asia-Pacific.

With the new Banting Plant 2, TMK aims to double its existing capacity of 216,000 tonnes to a maximum of 432,000 tonnes of sodium hydroxide at a concentration of 32%, enabling the group to secure more customers and enhance overall efficiency.

The company has earmarked RM90.2 million, or 23.4% of its IPO proceeds, for the construction of Banting Plant 2 on a site adjacent to Plant 1. The estimated total cost of the new plant is RM97.5 million.

Apart from that, TMK is looking to grow through acquisitions, targeting to use RM99.1 million from the IPO proceeds for acquisitions and investments in companies to accelerate its expansion and strengthen its regional presence. Its regional expansion will include facility upgrades in Vietnam and a potential entry into Indonesia via acquisitions or new establishments.

The remainder of the IPO proceeds will be allocated as follows: RM50 million for debt repayment, RM79.4 million for working capital and the balance for listing-related expenses.

TMK reported a profit after tax (PAT) of RM91.6 million for FY2023, down nearly 40% from RM150.34 million in FY2022, as revenue fell 12% to RM1.31 billion from RM1.48 billion. The decline was attributed to lower contribution from the total chemical management segment, which saw price fluctuations across various products. The company recorded a PAT of RM123.09 million on revenue of RM1.12 billion in FY2021.

In a Nov 29 note, PublicInvest Research said it expected the vertical integration of TMK’s chemical management segment with the Banting Plant 1 manufacturing facility to increase its margin. The plant is currently running at about 90% capacity.

The research house said its fair value of RM2.05 per share could value the group up to 15.5 times its core profit for FY2025. It added that its 20% PER premium to its peers is warranted given that TMK commands a higher profit margin at an average of 9.4% compared with its peers’ average of 4%.

The company’s peers on Bursa include Ancom Nylex Bhd (KL:ANCOMNY), Luxchem Bhd (KL:LUXCHEM) and Samchem Holdings Bhd (KL:SAMCHEM).

PublicInvest Research cautions that TMK faces competition from manufacturers and downstream players in the inorganic chemicals industry in Malaysia, Singapore and Vietnam, as well as potential new entrants. Another risk would be price volatility, availability and quality of inorganic chemicals, and raw materials.

In its Nov 29 note, RHB Research ascribed a fair value of RM2.09 per share based on a projected three-year earnings compound annual growth rate (CAGR) of 5%, resulting in a PER of 15 times the company’s FY2025 earnings. This is a slight discount to Bursa Malaysia Industrial Production Index’s average PER of 16 times.

Malacca Securities has a fair value of RM2.47 per share, an upside potential of 41.1% from the IPO price based on a PER of 17 times. The research house projects a three-year earnings CAGR of 19.7%, largely supported by increased foreign direct investments resulting from the intensified US-China trade war, which will benefit Malaysia’s industrial and manufacturing sectors, creating more demand for TMK’s chemicals.

Founded in 1989, TMK specialises in total chemical management services, including the sourcing, processing and distribution of inorganic chemicals such as acids, alkalis and salts. The company also offers value-added services to its clients.

TMK is controlled by Datuk Lee Soon Hian, the youngest of the billionaire Lee brothers behind plantation conglomerate Kuala Lumpur Kepong Bhd (KL:KLK). Post-IPO, he will hold a 39.5% stake in the company, while its executive director Leong Chao Seong and Lee Oi Loon will have 9.5% and 6.5% equity interest respectively.

The group has pledged to distribute 30% to 50% of its PAT as annual dividends to shareholders.

Maybank Investment Bank Bhd is the principal adviser, sole bookrunner and underwriter for the IPO exercise. 

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