TMK Chemical Bhd Launches IPO, Subscription Opens on 25th November 2024

TMK Chemical Bhd is a leading company primarily engaged in offering comprehensive chemical management solutions, which include the sourcing, processing, and distribution of inorganic chemicals, along with value-added services. Additionally, TMK Chemical Bhd provides chemical terminal services, which involve bulk storage solutions. The range of inorganic chemicals provided by the company includes acids, alkalis, salts, and various other chemical products.

Operating from a network of 15 facilities—ranging from liquid bulk, dry bulk, processing, handling and storage, to product improvement facilities—across Malaysia, Singapore, and Vietnam, as well as two liquid bulk terminals in Malaysia, TMK Chemical Bhd has established a robust presence in the region. A significant milestone for the company was reached in May 2024, when it began the production of inorganic chemicals, specifically chlor-alkali derivatives such as sodium hydroxide (caustic soda), chlorine, hydrochloric acid, sodium hypochlorite, and hydrogen, at its Banting Plant 1. This expansion into manufacturing marks an important step in the company's strategy to diversify its offerings and strengthen its position in the chemical industry.

The company's business activities are as follows:

TMK expects to use the gross proceeds from our Public Issue amounting to RM385.0 million in the following manner:

TMK Chemical intends to allocate approximately RM90.2 million or 23.4% of the gross proceeds from the Public Issue for the expansion of its Banting Plant 1 by constructing Banting Plant 2, which will occupy a land area of approximately 45,700 m² to 55,900 m². This expansion will increase the Group's manufacturing capacity of chlor-alkali derivatives, namely sodium hydroxide, chlorine, hydrochloric acid, sodium hypochlorite, and hydrogen.

TMK Chemical intends to allocate approximately RM49.5 million, or 12.9% of the gross proceeds from its Public Issue, to fund the construction costs of a new processing facility (“Singapore Facility 4”) for the expansion of its Singapore operations.

TMK Chemical intends to allocate approximately RM99.1 million or 25.7% of the gross proceeds from its Public Issue for investment and acquisition of target companies to be identified in the next 36 months.

TMK Chemical intend to allocate approximately RM50.0 million or 13.0%of the gross proceeds from our Public Issue to partly repay the Islamic term financingof RM250.0 million granted by Maybank Islamic Berhad which was drawn down down con 8 February 2024 to finance the cash consideration of the Acquisition.

TMK Chemical intend to allocate approximately RM79.4 million or 20.6% of thegross proceeds from our Public Issue to fund the working capital requirementsof our Group. Working capital will be used to finance raw material purchases, which includes packaging material purchases and logistics, as well as general and administrative expenses, such as staff costs and warehouse-related costs, which are recquired for our Malaysia, Singapore and Vietnam operations.

The estimated fees and expenses for IPO and Listing to be borne by TMK are estimated to be RM16.8 million, comprising the following:

From 2021 to 2023, the company's revenue experienced fluctuations. In 2021, the revenue was RM1,126.8 million, which then saw a significant increase in 2022 to RM1,484.3 million. However, in 2023, the revenue decreased to RM1,306.1 million. The semi-annual report for 2023 showed a revenue of RM643.8 million, while the semi-annual report for 2024 indicated a slight increase to RM659.4 million, suggesting that the company may be taking measures to stabilize its revenue base.

Gross profit stood at RM209.7 million in 2021 and increased to RM261.1 million in 2022, demonstrating the company's success in improving sales efficiency or reducing costs. However, the gross profit dropped to RM209.9 million in 2023, which may be related to the decrease in revenue. The semi-annual report for 2023 showed a gross profit of RM102.2 million, while the semi-annual report for 2024 was RM116.6 million, indicating that the company may be regaining its profitability, albeit with a modest increase.

1. Net profit was RM123.1 million in 2021, and it increased to RM150.3 million in 2022, aligning with the trend of gross profit growth. However, the net profit dropped to RM91.6 million in 2023. But in the semi-annual report for 2024, it stood at RM59.8 million, indicating that the company has made some progress in improving net profit, although it is still below the level of 2022.

The inorganic chemical industry primarily involves the production and distribution of compounds extracted from abiotic natural resources, encompassing the manufacturing and sales of products such as alkalis, acids, and salts. In Malaysia, the industry experienced a 10.00% decline in consumption from 2019 to 2020 due to the COVID-19 pandemic, but then recovered with a compound annual growth rate of 26.64% between 2020 and 2022. However, consumption fell by 14.16% year-on-year in 2023, mainly due to demand returning to normal levels. Industry growth is driven by economic expansion and the development of the manufacturing sector, while also facing risks and challenges such as global economic recession and changes in government policies.

In terms of competitive landscape, Malaysia's inorganic chemical industry is composed of upstream manufacturers and downstream trading distributors, with the TMK Chemical Bhd leading the way, holding market shares of 24.91% in Malaysia, 9.08% in Vietnam, and 23.98% in Singapore.

The public issue comprises a total of 220,000,000 new shares, distributed as follows:

1. Institutional offering of 190,000,000 ipo shares to institutional and selected investors at the institutional price to be determined by way of bookbuilding;

2. Retail offer of 30,000,000 IPO Shares to the directors of tmk, eligible employees of tmk and its subsidiaries (the “Group”), persons who have contributed to the success of the Group and to the Malaysian public.

A long history and track record of 35 years: Since the company started its business in 1989, it has a long history and track record of 35 years in the inorganic chemical industry, which has enabled the company to accumulate a wealth of experience in the industry.

A wide range of chemical supplies and a diversified customer base: The company offers a broad SKU of up to 4,427 different types of chemicals, serving industrial users in multiple economic sectors, which helps the company seize growth opportunities and reduce the risk of being affected by a single industry.

Providing end-to-end solutions: The company is able to provide customers with comprehensive chemical management solutions from procurement, processing to distribution, as well as value-added services including handling and storage services, quality control inspections, and pre-sales and after-sales support services.

Regional market presence and international customer export capabilities: The company has a business presence in the Southeast Asia region and exports inorganic chemicals to international customers, reflecting the company's regional and global footprint in the inorganic chemical industry.

An experienced and long-serving management team: The company's non-independent executive director and vice chairman, Leong Chao Seong, has over 33 years of experience in the chemical industry, and the non-independent executive director and managing director, Wong Kin Wah, has over 30 years of experience in the inorganic chemical industry. Their technical and industry knowledge is crucial to the company's strategic direction and business development.

Dependence on licenses and approvals: Our business is dependent on licenses, permits, and approvals from various authorities, and there can be no assurance that we will be able to successfully renew these approvals in the future, which could have a material adverse effect on our business.

Foreign exchange fluctuation risk: Fluctuations in the exchange rates of the U.S. dollar, Singapore dollar, and Vietnamese dong may adversely affect the Company's financial performance.

Reliance on third-party logistics service providers: The Company relies on third-party logistics service providers for the delivery of its products, and if any of these service providers fail to fulfill their contractual obligations, it may result in the failure to fulfill customer orders in a timely manner.

Reliance on leases, rentals, and third-party facilities: The Company relies on leases, rentals, and third-party facilities for a significant portion of its business, and failing to renew these agreements in a timely manner could disrupt business operations.

Risk of concentration of suppliers: The Company purchases its inorganic chemicals from a few key suppliers, and although there is no risk of dependence on these suppliers at present, there is no assurance that it will not face concentration risk in the future.

Dependence on management team: The Company's business is heavily dependent on the continued contribution of the management team, and the loss of any member of the management team, either simultaneously or within a short period of time, could have an adverse effect on the business.

Industry competition risk: Our business competes with other industry participants in Malaysia, Singapore, and Vietnam.

Price fluctuation, availability, and quality risk of inorganic chemicals and raw materials: Prices of inorganic chemicals fluctuate based on market demand and supply conditions, and the Company is exposed to the risk of fluctuations in the prices of inorganic chemicals.

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