TMK Chemical earnings beat 91.5% YoY on ASP gains

Chemicals Play Posts Outsized Earnings Beat as ASPs Fire

TMK Chemical Berhad‘s core profit after tax and minority interest (PATMI) surged 91.5% year-on-year to RM40.8 million in the second quarter of 2026, marking its fifth consecutive quarter of earnings expansion. The result came in well ahead of expectations, according to Malacca Securities Research, as the specialty chemicals manufacturer benefited from both rising average selling prices and stronger sales volumes in its chlor-alkali and derivatives business.

For the first half of 2026, core PATMI reached RM71.0 million, up 68.7% year-on-year, already accounting for 57.2% of Malacca Securities’ full-year FY26 forecast of RM143.2 million. The research house noted that this represented a material upward revision from its prior FY26f estimate, lifted by 15.3% following the stronger-than-expected performance.

Revenue and Margins Expand Sharply on Pricing Power

Revenue in the quarter climbed 28.6% quarter-on-quarter to RM310.4 million, propelled by higher sales volumes alongside improved ASPs across TMK’s product portfolio. Year-on-year, total revenue rose a more modest 17.7% to RM310.4 million, though this masks the underlying strength in profitability.

Gross profit expanded by 57.5% year-on-year to RM80.8 million, with gross margin widening by a significant 6.6 percentage points to 26.0%. Pre-tax profit (PBT) nearly doubled, climbing 98.8% to RM52.0 million, supported not only by the higher gross profit but also by a 30.1% reduction in finance costs. Core PATMI margin improved to 13.1% from 12.5% in Q1 26.

For the first half of 2026, gross profit surged 43.0% year-on-year to RM143.0 million, pushing gross margin up 6.7 percentage points to 25.9% from 19.2% in the same period last year. Cost of sales actually declined 3.1% despite higher revenues, reflecting improved operational leverage and purchasing efficiency.

Catalysts Ahead: Plant Expansion and CCM Acquisition

According to Malacca Securities’ outlook, TMK’s near-term profitability should remain underpinned by favourable ASPs and sustained chlor-alkali demand. Higher global oil prices have supported product pricing, while robust hydrochloric acid (HCl) demand amid supply constraints should continue to underpin margins, the research house noted.

The medium-term catalyst is the Banting Plant 2, scheduled for completion in 2027, which is expected to add 40,000 equivalent caustic units (ECU) and double existing chlor-alkali derivatives capacity. Crucially, this expansion carries approximately 60% lower capital investment than existing assets, which should reduce depreciation and manpower costs per unit, supporting further margin expansion.

TMK is also pursuing the proposed acquisition of CCM from Batu Kawan Berhad for an indicative purchase consideration of RM920.0 million on a cash-free, debt-free basis. On 7 August 2026, both parties mutually extended the exclusivity period by one month to 12 September 2026 to continue transaction document discussions. If successful, the deal would be funded through the issuance of approximately 250 million new shares, enlarging TMK’s share base to 1.25 billion shares.

Malacca Securities estimates that on a pro-forma basis, assuming successful CCM completion and using CCM’s adjusted FY25 PATAMI of RM71.4 million as a proxy for full-year contribution, the combined entity could generate FY27f earnings of RM238.7 million, translating to approximately 19.1 sen EPS before acquisition financing costs and consolidation adjustments.

Valuation and Recommendation

Based on 15.0x pro-forma FY27f EPS of 19.1 sen, Malacca Securities derives a target price of RM2.86, upgraded from RM2.55. However, the research house maintains a HOLD rating on the stock, reflecting caution around execution and integration risks associated with the CCM transaction.

TMK’s balance sheet offers some flexibility: the company held RM58.5 million net cash and gross gearing of only 0.26x at the time of analysis. A dividend of 3.6 sen per share has been declared for FY26, with ex-date on 7 October 2026 and payable on 4 November 2026.

What This Means for Retail Investors

TMK Chemical’s earnings momentum is undeniable: five consecutive quarters of profit growth, widening margins, and a recovery in finance costs all signal improving operational health. The announced dividend demonstrates management confidence, though at current price levels, the yield would need to be calculated against the latest market price. For investors tracking the chemical sector, TMK’s ASP expansion and margin profile stand out as genuine improvements rather than one-off gains, given the underlying demand drivers in hydrochloric acid and chlor-alkali products.

The CCM acquisition remains a material unknown—execution, debt financing terms, and integration success are all variables that Malacca Securities explicitly flagged as risks. Additionally, regulatory approval and non-interested shareholder votes will be required. Commodity and raw material cost volatility also poses a downside risk, though current global oil strength has been a tailwind.

Retail investors holding TMK should monitor the CCM transaction timeline closely, particularly the September 2026 exclusivity deadline. Those considering a position should weigh the growth narrative against the binary nature of the acquisition and the research house’s cautious HOLD stance.

Key Takeaways

• Core PATMI jumped 91.5% YoY to RM40.8m in Q2 26, with five consecutive quarters of earnings growth now achieved.
• Gross margin expanded 6.6ppt to 26.0%, driven by higher ASPs and lower costs, signalling genuine operational improvement rather than pricing alone.
• Malacca Securities raised FY26f and FY27f earnings forecasts by 15.3% and 19.0% respectively, reflecting stronger-than-expected volume and ASP assumptions.
• Banting Plant 2 (2027) and the RM920m CCM acquisition are key medium-term catalysts, though the latter carries integration and financing risks.
• HOLD rating maintained with TP of RM2.86—gains are real, but CCM execution risk and capital intensity warrant a cautious stance.

The full research report is available from Malacca Securities (M+ Online), published 27 August 2026. This article summarises the findings; investors should read the complete report before making investment decisions.

Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice or a recommendation to buy or sell any security. Ratings and target prices cited are those of Malacca Securities Research and are subject to change. Always do your own research before making investment decisions.

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