Information Request

Online Q&A

MegaChem Limited

Management Online Q&A With Investors

Dear Investors,

Thank you very much for the questions and the opportunity for us to respond. We hope you have a better understanding of our business through this online exchange.

Your questions will be reposted in blue italics followed by our replies in black.

Rgds,
The Management Team
MegaChem Limited

Dear Chow Loo Mey, you wrote:

I have been holding your stocks for the last few years and to be very frankly with you this it has been the biggest mistake I have ever made. I don’t see any major projects or any stimulis plans from your company. Your stocks is basically stagnant with no volume movement.

Over the last few years, we have pursued a strategy of transforming our business model from a regional distributor to a global integrated solution provider.

In 2007 we took a step closer to realizing our vision of being a global and integrated player in the specialty chemical business which in turn will lay the foundation for the phase of growth.

Growth Driver : Manufacturing ---->Integrated Solution Provider

The rapid growth in our manufacturing business continued in 2007 with stronger demand from customers for custom-blending services. With our manufacturing operation firmly in place, we are now better-positioned as an integrated solution provider, with the ability to provide a more complete, one-stop solution to our customers. With higher value-creation, it will be an important driver of our business going forward.

Growth Driver : Emerging markets ---->Global presence

In December 2007, our application for a business licence in Dubai was approved thus further intensifying our drive towards being a global player. The Dubai office will serve as a launch pad for our Group’s business in Middle East, which together with our presence in China, India and Vietnam, put us in a good position to take advantage of the high growth potential in these markets.

We believe the current business strategy that we undertake will propel us to higher level of growth in the coming years.

Meanwhile we have rewarded our shareholders with good dividend yield over the years.

Dear Jayster, you wrote:

The energy sector has been relatively strong despite the slowdown caused by the US sub-prime woes.

Having secured a 3 year supply contract for an petrochemical MNC in Singapore, what other opportunities do MegaChem see relating to the alternative energy boom like bio-diesel, ethanol and solar energy?

Does MegaChem supply chemicals to this fast growing sector?

How has the demand been for chemicals in the oil & gas sector for the past 6 months and what sort of growth and margin do you see going forward?

We see growth in our chemical sales to the oil and gas and foresee this trend will continue given the on-going contract we have with this customer and possibility of spin-off business. We will continue to aggressively explore more contracts with other companies in this industry.

The energy sector such as bio-diesel also requires chemicals. One of our customers in this sector is buying from us on a very small scale for trial. If successful, we will then be in a position to develop sales to this sector in a bigger way.

Dear Serene, you wrote:

Why did MegaChem decide to set up shop in the Middle East?

How’ the chemical industry there in terms of competition, demand and margins?

Is MegaChem bidding for any contracts there currently?

According to some chemical industry report, countries such as China, India and Middle-east will enjoy the highest growth rates in the coming years. We have already established our presence in China, Vietnam and India and in December 2007 set up a subsidiary in Dubai, Middle-east. We are therefore well-positioned to ride on the growth of these markets.

Our Middle-east business increased 292% in the financial year 2007 setting the momentum for further growth. We are focusing on industries where there is high demand for chemicals such as construction, coating and oil and gas industry.

We will ride on our existing MNC customer base who have presence in Middle-east to explore regional or global contracts with them.

We will continue to make regular updates on the SGXnet to keep our shareholders posted with regards to any major contracts at the appropriate time. We would like to assure you that MegaChem is actively pursuing opportunities for major long-term contracts."

Dear David Sim, you wrote:

MegaChem’s share is suffering from a lack of liquidity and analyst coverage despite the good results.

What measures has the management considered to solve this plaguing problem?

The small free float reflects the confidence the founding shareholders have in the future of this company. We have stated in much of our communication with shareholders our efforts in building the foundation for the next phase of growth which we believe we are beginning to see now. So far these expansion plans have been funded internally. However we do not rule out the possibility of raising equity funds to fund further expansion if the market conditions are right. With that the free float and thus liquidity will then increase.

We have a comprehensive investors’ relation program to reach out to our existing shareholders as well as potential investors. These include :

Participating in SGX Research Scheme under which CLSA and DBS Vickers Securities are covering our stocks. You may refer to our website www.megachem.com.sg for their research reports.
Organising analyst briefings after each result announcement
Organising On-line Q&A such as this
Giving presentation to securities firms, fund managers etc
Engaging Shareinvestor, a financial on-line portal, to manage our online communication with investors

Dear Seinfield, you wrote:

High inflation, surging oil prices, declining USD with slower growth projected ahead. How does MegaChem achieve growth in profits despite all this?

In general, the escalating oil price has both direct and indirect impact on the chemical industry at large. These effects include:

When oil prices rise, costs for the raw materials used to make chemicals also increase

Rising oil prices dampens demand and the overall economy, as manufacturers and consumers curtail their purchases
Higher raw material costs affect companies that make basic chemicals or commonly known as the commodity chemicals most, as the content of oil in such upstream products are high.

Companies that make specialty chemicals are not immune but slightly less susceptible to the pressures faced by commodity chemical companies as they are more focused on targeted applications and markets. These are more downstream products whose oil content is smaller and their usage in finished products is also smaller.

As we are mainly in the specialty chemical business, the direct impact of higher oil prices on us is less as compared to a commodity chemical company. The indirect impact of lower consumer spending and slower economic activity is however greater.

On the impact of currency, as our purchases are largely in USD, the lower USD exchange rate is generally in our favour.

Lastly the higher global inflation will result in higher business cost especially in areas such as freight cost and warehousing cost.

However we have proven our resilience in the past by staying profitable even under difficult financial and economic conditions. In fact we have been profitable since inception. Despite these challenges that we may face, we believe our current strategy of building a global presence and developing our manufacturing business will propel us to new heights in the next few years.

Dear Francis Tan, you wrote:

Hello,

I think it is time for Chairman and CEO to be two different persons. Without discrediting Mr. Chew, we need a new face, someone more aggressive especially in commercial and share price.

As explained above our focus is on building the business. We have a clear objective of bringing this business to a higher level. We have done this by creating the platform for growth over the last few years through our global network and developing our manufacturing capabilities. We believe we are on track in executing our business strategy which will translate into higher profitability for the company. Whether this gets translated into higher share price is to a large extent not within our control.

We believe our current board of directors has a strong element of independence given that 3 out of 5 are independent directors and that all 3 committees namely the audit, remuneration and nomination committees are headed by independent directors.

Dear Investors,

We thank you all for your questions and hope we have sufficiently addressed your concern. We would like to assure all shareholders that the management is committed to growing this company and to enhance our shareholders’ value.

Regards,
The Management Team
MegaChem Limited