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Friday, January 30, 2015

Texchem: Value of its Restaurant Business

I once took a look at Texchem Resources before because the group operates the Sushi King Restaurant chain but found out that it's not worth to invest in due to high borrowings and poor performance from other segments that dragged down the group's bottom line. 

Not until there was a article from TheStar last weekend that able to attract my attention again.

In short, below is the summary of the article, 

1) The group sold 28% stake of Sushi Kin Sdn Bhd to Japanese fast food restaurant giant Yoshinoya Holdings Co Ltd for RM102.2mils

2) Interestingly, the transaction values Sushi Kin at RM262.3mil. This implies that the remaining 72% stake Texchem holds in Sushi Kin is worth RM188.86mil, which is higher than the group's market cap of RM164mil. (Personally think that the calculation in the article was something wrong, but for sure the Sushi Kin valuation is higher than the market value of the group)

3) It's partner Yoshinoya, plans to open Yoshinoya Beef Bowl and Hanamaru Udon not just in Malaysia but also in other regional markets.

4) It will continue to grow its Sushi King chain to 103 outlets this year from the existing 89.

5) With the expansion of its restaurant business, he expects the division to contribute some RM300mil to the group’s topline in 2015 compared with RM150.9mil recorded for the first nine months ended Sept 30, 2014

Based on AR2013, the group's Restaurant Division operated a total of 87 restaurants, including 80 Sushi King restaurants, 3 Goku Raku restaurants, 2 Miraku restaurants, 1 Waku Waku restaurant and 1 Blu Med Restaurant.

Little did I know that the group also owns 51% of the famous Hong Kong Michelin-star dim sum restaurant, Tim Ho Wan chain in Malaysia and just opened its first restaurant in Mid Valley in November last year.

And they plan to open 10 Tim Ho Wan dim sum restaurants in three years.

To recap, the group has 4 business segments. 

Industrial - Contributed the most to the group's top line but only fetches around 1% profit margin didn't make it look like a good business

Polymer Engineering - Had been bleeding and eroded the group's bottom line for years. 
Food processing - Fluctuating and poor profit margin.
Restaurant - The only bright spot of the group

Perhaps the group will fare better if the group dispose its loss making business ...

Or its restaurant business will grow and become the core and breadwinner of the group?

Or out of sudden, other segments improve tremendously and make the group looks like a good deal?

Or its restaurant division grows bigger and big enough to be listed separately in order to unlock its value? 

Time will tell 

But its restaurant business looks interesting to me at this moment as I think Tim Ho Wan will have their own customers just like Dragon-I. 


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