MegaChem Limited

Management Online Q&A With Investors

Dear Investors & Stakeholders

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 are reposted in blue followed by our replies in black.

Best Regards,
The Management Team
MegaChem Limited

Dear William Tan, you wrote:

Do you think your inventory level is too high until your operating cashflow is negative?

Following the rapid rollout of vaccination and gradual reopening of the global economy, chemical demand surged in 2021, leading to a critical shortage of products and shipping capacity in 2021 which posed significant challenges to product supply and inventory management.

In response to these challenges, we have been restocking our inventory to meet our customers' requirement after cutting back in 2020 at the onset of the pandemic. Our primary aim is to ensure there is continuity of supply for our customers. The higher inventory level is also partly due to higher chemical prices. These factors led to the higher inventory level, higher working capital and negative operating cashflow.

Our financial condition has been healthy and gearing level has been low before the pandemic which provides us the room to increase our inventory to ensure continuity of supply and to gear up our business to take advantage of the pent-up increase in demand.

Dear David Ng, you wrote:

Will the company consider bonus share or share split to improve the liquidity of the shares?

Reflecting our profitable track record and strong financial condition, we have been able to reward our shareholders with cash dividend consistently. Although we currently do not have plans for a bonus share issue, we will consider them at the appropriate time.

The low liquidity of our shares is probably due in part to the fact that most of our shares are tightly held by long term investors whose investment objectives are long term capital gain and consistent dividend return. Hence doing a share split may not necessarily increase the share liquidity. Nevertheless we can explore and consider this when the conditions are right.

Dear Jennifer Chan, you wrote:

High oil prices usually reduce your profitability why the reverse happened this round?

Oil prices has staged a remarkable rebound since the later part of 2020 which has pushed freight rates and chemical prices higher. Specialty chemicals, though not immune to oil price fluctuations, are less susceptible in comparison to bulk commodity chemicals due to the fact that they are more downstream product whose usage in the finished product is smaller. Hence demand for specialty chemicals is less sensitive to price fluctuation.

This is evident in the fairly stable gross profit margins even when oil prices and freight cost surged in 2021.

Dear Erik Neo, you wrote:

Why the switch from cleaning chemicals to personal products for your thai associate?

Our associated company in Thailand, Megachem Plus Limited, imports and distributes chemical products to the cosmetic and cleaning industries.

Green Leaf Chemical Co Ltd, which we invested in 2021 through our associated company in Thailand, is in the business of distributing chemical materials for the manufacturing of personal care products such as cosmetics and nutraceuticals as well as providing service for clinical testing of such products.

Both businesses will enhance the Group's product portfolio and deepen our coverage of the personal care industry thereby strengthening our market position.

Dear Investors & Stakeholders,

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

We have enjoyed the session and have learnt much from your questions. We hope that through this Q&A, you have gained better insights to our Company and our operations.

Best Regards,
The Management Team
MegaChem Limited