Texchem

Its exit offer to the minority shareholders of its loss making Singapore listed unit, Texchem-Pack Holdings Ltd, means there may be near term pains as the group invests for future growth in the food and beverage scene.

Historically, TPack, the polymer engineering division, has been the main drag on group earnings. A 100% ownership of TPack after the completion of the exit offer means Texchem will be booking up to 100% of the former’s profits or losses from now (Aug 2015) on.

In FY2014, the polymer engineering unit reported pre tax losses of rm14.04 million, which largely negates the rm15.6 million in profits garnered by Texchem’s crown jewel, the restaurant. As a whole, the group’s net profit for FY2014 came in at rm1.18 million despite revenue growing 7.24% to rm1.02 billion.

Texchem expects TPack to be profitable in the financial year ending Dec 2016.

Texchem spent the last six years changing the division’s focus to catering for the medical and life sciences sectors from the electronics sector previously, after it slipped into the red post the 2008 financial crisis.

But pending a turnaround, whatever losses made TPack would be fully consolidated into Texchem’s books.

Texchem expects the TPack buyout to raise its 2014 net asset value per share to rm1.60. However gearing is expected to rise from 0.74 times to 0.85 times as the company will fund the exit offer with 90% borrowings and 10% cash.

Using end June 2015, Texchem had rm97.5 million cash and cash equivalents but is in a rm89.95 million net debt position after accounting for rm187.45 million loans and borrowings.

It remains to be seen if that ceiling would change as Texchem is still looking to grow its F&B business, including via M&As.