PETALING JAYA: TA Securities has lowered TMK Chemical Bhd’s (TMK) target price to RM3.44 from RM3.48 after taking into account the higher-than-expected share dilution from the issuance of 262.5 million new shares for the acquisition of Chemical Company of Malaysia Bhd (CCM) from Batu Kawan Bhd.
The brokerage, which previously assumed TMK to issue 250 million new shares, has maintained a “buy” call on the stock based on 18 times financial year ending Dec 31, 2027 earnings per share multiple.
The acquisition valued CCM at RM940mil, with the purchase consideration to be satisfied via RM438.5mil in cash and the issuance of 262.5 million new TMK shares at RM1.908 a share.
The cash consideration would be funded by RM99.1mil of earmarked initial public offering proceeds, with the remaining RM339.4mil to be funded via bank borrowings and/or internally generated funds.
Upon completion of the acquisition, Batu Kawan would hold a 20.8% direct stake in TMK.
It noted that the final purchase consideration “is broadly in line with the previously indicated valuation, with the difference primarily reflecting CCM’s net cash position”.
Based on CCM’s financial year ended Sept 30, 2025 (FY25) adjusted profit after tax and minority interests of RM72.7, the acquisition implies a price-earnings multiple of 12.9 times.
This translates into an implied price-to-book of 1.4 times based on CCM’s FY25 equity attributable to owners of RM673.4mil.
Given CCM’s FY25 net margin of 10.9% and return on equity of 11.4%, we view the implied valuation as reasonable,” it said.
It pointed out that based on an assumption of RM339.4mil balance of the cash consideration to be fully funded through bank borrowings, the acquisition would shift TMK to a net debt position with net gearing rising to 0.22 times.
TMK was in a net cash position of RM58.5mil as of June 30, 2026, equivalent to net gearing of minus 0.07 times.