Analysts Are Positive on PTTGC over ฿148Bn Deal, Seeing Long-Term and Sustainable Growth

PTT Global Chemical Public Company Limited (PTTGC) was the securities in SET Index’s with the most trading value in the session on July 12, 2021 after the announcement of an investment in High Value Business (HVB) at a value of 148,417 million baht.

 

The share price fell ฿3.50/share or 5.98% to close the session at ฿55.00/share with a trading value of 5,400 million baht. PTTGC plunged as much as 7.26% during the trading session.

The plummet came after the Board of Directors of PTTGC International (Netherlands) B.V. (GC Inter B.V.), the wholly owned subsidiary of PTTGC, approved two transactions to acquire Allnex Holding Germany II GmbH at a total investment value of 148,417 million baht, causing concern among investors over the possibility of a capital increase due to the high-valued acquisition.

 

However, PTTGC stated that the company has sufficient sources of funds from the company’s cash on hand and the debt financing capacity from the loan from PTT Public Company Limited (PTT) and financial institutions without the requirement for a capital increase.

More importantly, the acquisition of the target group highly fits to the company group’s growth strategy with the aim to diversify the company group’s business toward the specialties arena.

 

UOB Kay Hian Securities had a positive outlook on PTTGC, expecting no cash call is needed for the acquisition. UOB Kay Hian stated that PTTGC has 109 billion baht of cash on hand as of end-1Q21, 30 billion baht from divestment, loan support from PTT and a good operation in 2Q21. Altogether, PTTGC will have enough to fund for its 148 billion baht of investment.

In the meantime, net D/E is likely to rise 0.6-0.7x (after acquisition) from 0.3x (as of 1Q21), which is still below its policy at 1x.

Moreover, PTTGC sees a positive impact from this M&A as the EBITDA for Allnex, which should improve from ~EUR300m (during the COVID-19) to EUR400-500m given the improvement in the Auto and electrical appliances sector.

 

Phillip Securities (Thailand) stated that following this morning’s conference with PTTGC, the company stated that despite its investment in High Value Businesses worth up to 140 billion baht, it believed there is no need for a capital increase since PTTGC currently has 100 billion baht in cash on hand.

Additionally, there is secured money in the amount of 25,000 million baht from the disposal of GPSC’s shares, as well as financial support from PTT in the amount of 73,920 million baht, which resulted in an improved D/E ratio of 0.6x.

The acquisition is valued at around 12x EV/EBITDA, compared to its peers at 10-13x. The transaction is expected to be completed in 4Q21.

Phillip Securities was positive about the aforementioned acquisition since it has a potential to bolster PTTGC’s high-value businesses and thereby mitigate the impact of commodity products. Even though PTTGC’s share price has dropped sharply, the company remains attractive, with a projected healthy 2Q21 earnings outlook. Thus, we maintain a “BUY” recommendation with a target price of ฿70.00/share.

 

KT Zmico Research stated that Allnex Holding GmbH is a leader in the industrial coating resins business, with 34 production sites around the world. The transaction value is equivalent to 10x of EV/EBITDA, compared to 6-12x in the industries.

KT Zmico wrote that Allnex has around 330-350 million euros of EBITDA per year, and around 80-100 million euros per year. Meanwhile, EBITDA margin is around 13-17%, which is expected to strengthen PTTGC’s profit base in the future.

The company is pursuing sustainable growth in which the HVB is expected to increase PTTGC’s EBITDA contribution from 10% to 25% in 2030.

While not needing a capital increase, the company could increase its liquidity with a 70 billion baht of loan from PTT, which would raise its D/E ratio to 0.6x. The D/E is expected to decrease next year after a a maturity of debentures.

Lastly, KT Zmico had a positive outlook in the long term with a target price at ฿71.00/share, excluding the Allnex acquisition.