Information Request

Online Q&A

MegaChem Limited

Management Online Q&A With Investors

Dear Investors,

Thank you very much for your questions and the opportunities to respond to them.

We hope you have a better understanding of our business through this online exchange.

Your questions will be reposted in blue italics.

Rgds,
The Management Team
MegaChem Limited

Dear Mdm Tay, you wrote:

Why has profits for hy05 compared to hy04 drop? what are the factors? there is a slight increase in cash inflow from operating activities. can throw some light on what are some of these activities?

The global economic environment in the first half of this year was generally more cautious amid concerns over rising oil prices. This translated into lower demand for chemical products. The Group’s performance was undermined by lower sales in Singapore and Malaysia. The decline in sales for our Singapore’s operation was due to a non-recurring project last year. In addition one of our customers in the photographic industry has moved bulk of its operation to China. The decrease in sales in our Malaysia operation was due to the reduction in production and inventory by the customers in general. Our cash flow remains at a healthy level as the operation generates positive cash flow. The main outflows of cash were dividend payment of $1.2 million and the reduction of bank borrowings of $4.3 million.

Dear Ortega V., you wrote:

Just 1 question for the management.
Thanks for organising I am curious to your exposure to the escalating oil prices.
At the moment, how much of your COGS comes from oil products (or related)? Or to rephrase this, how sensitive are you to the oil prices?
Pls explain as I feel this is the biggest obstacle for investors to get more interested in MegaChem.

In general, the escalating oil price has both direct and indirect impact on the chemical industry.

When oil prices rise, costs for the raw materials used to make chemicals also rise.
Rising oil prices also dampens demands 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.

Not immune but slightly less susceptible to the pressures faced by commodity chemical companies, are companies that make specialty chemicals, which 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 rising oil prices on us is not as much compared to a commodity chemical company. This is evident in the fairly stable gross profit margin that we were able to maintain over the years.

The indirect impact is greater when our customers become cautious in their purchasing and production, resulting in , lower sales for the Group.

For more information on the industry, investors may refer to the website http://www. biz.yahoo.com/ic/profile.

Dear Yellowcard, you wrote:

Hi sir, Latest results seems to show 2 pictures.

1.Your traditional markets in Asia are slowing down quickly but the China market seems to show some hopeful signs. Will this trend continue in the 2nd half and beyond?

We believe the lower sales we registered in our 2 major markets mainly Singapore and Malaysia are reflections of the slower market conditions. It is not a sign of permanent decline. China’s growth rates continue to be strong and our China operation has benefited. However we do foresee the proportion of sales from markets outside Singapore increasing in the future.

2.Liquidity in your shares is getting from bad to worse. How do you feel towards this lack of market participation in Megachem whereas a comparable peer Meghmani has comparably better following? Are there any thing you are doing or going to do that will enhance its liquidity? Thanks.

At an appropriate time and given the right market condition, we will consider increasing the liquidity of the shares.

Dear Chong, you wrote:

Latest results is not so good. May I aks if the company has any orderbook so that we can at least see the visibility of your future revenue/earnings? - Can you share with investors what is the outlook for the chemical industries? Is it a growing one?

According to an industry report, output in the chemical industry in 2005 is likely to be marginally slower than 2004 but will recover in 2006.

Dear Toh Seen, you wrote:

1.Thanks for answering questions from small investors. Your dividend was not bad last year. Will you be maintaining similar level of dividend payout this Fy05? Thanks.

We remain committed to enhancing our shareholders wealth. However the amount of dividend payout will depend on, among other things, the full year profit, our cash position and our future growth plans.

2.Your latest half year results dropped by half. May I ask what happened and what steps are taken to stem this slide? Thanks.

Thanks.

The global economic environment in the first half of this year was generally more cautious amid concerns over rising oil prices. This translated into lower demand for chemical products.

The Group’s performance was undermined by lower sales in Singapore and Malaysia.

Contributing to the fall in our Singapore’s operation was a one-off project sale last year which did not recur this year. In addition one of our customers in the photographic industry moved bulk of its operation to China.

The fall in our Malaysia operation is more wide spread as customers there are cutting back on production and inventory.

Dear Tay, you wrote:

1.There is a slight drop in revenue, what is the main reason?

The global economic environment in the first half of this year was generally more cautious amid concerns over rising oil prices. This translated into lower demand for chemical products.

The Group’s performance was undermined by lower sales in Singapore and Malaysia.

Contributing to the fall in our Singapore’s operation was a one-off project sale last year which did not recur this year. In addition one of our customers in the photographic industry moved bulk of its operation to China.

The fall in our Malaysia operation is more wide spread as customers there are cutting back on production and inventory.

2.What is other operating income?

Other operating income comprised mainly interest income, rental income and foreign exchange gain.

3.Can you give us a breakdown of the sales revenue coming from each country?

Please refer to Page 16 of the announcement showing a breakdown of sales revenue from each country. Thanks!

Dear Investors,

Thank you for all your questions and the interest in MegaChem Limited. We have come to the end of this Q&A session.

We have enjoyed and learnt much from your questions and we hope that you have a better insight of our Company and know more about our operations.

Regards,
The Management Team
MegaChem Limited