<News Analysis>: Proposed acquisition of a high-tech material specialist company
Acquiring Penchem for RM15.6m; 0.96x P/BV. Frencken has entered into an agreement to acquire a 50% stake in Penchem Technologies Sdn Bhd for RM15.6m (c.S$5.2m). The acquisition will be funded by cash. The group has net cash of about S$72m as at 1H21. Frencken will also simultaneously subscribe for a further 1.92% stake in Penchem for RM0.6m (S$0.2m). The acquisition price works out to 0.96x P/BV as at end Dec 2021, which is much lower than Frencken’s 1.85x as at 1H21.
High-tech material specialist company. Penchem is a high-tech company focused on the designing, developing, formulating and manufacturing of polymer materials that are primarily aimed at applications and solutions for the electrical and electronics industry and also in markets such as coatings, adhesives, and fillers for industries such as automotive, marine and aerospace. Penchem has also invested in the development of environmental and ethically responsible bio-based polymers to serve the rapidly expanding market for eco-friendly materials that support the sustainability framework.
Manufacturing plant in Penang; customers include MNCs from different industries. Penchem’s core technologies and competencies include molecular design, synthesis, nanomaterials, and custom formulations. Penchem has a manufacturing facility in Penang with a comprehensive and advance laboratory for the design and testing of chemicals and polymers. Penchem’s customers include multi-national customers in the semiconductors, fibre optics, solid-state lighting, consumer electronics and automotive markets.
Penchem’s technological capabilities enable the group to penetrate into new and trending segments. Penchem’s high tech molecules, formulations and custom solutions enable the company to capitalize and significantly diversify into markets that are increasingly seeking strong, lightweight, and stable material systems that are also environmentally responsible, as example IoT, smart plastics, electric vehicles, robots, consumer appliances, displays, plastic mouldings and composites.
Small acquisition, a good fit but no material impact near term. The proposed transaction is expected to be completed in FY 2022. Though small, it is a good fit into Frencken’s diversified portfolio of product offerings as Penchem’s technological capabilities can be applicable to materials used in a wide range of industries. Frencken can also leverage on Penchem’s expertise to better serve its existing customers and provide more value-add services.
Maintain BUY and TP of S$2.65. FY21 results is expected to be released on 24 Feb 21.