Email This Print This

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 HaiI Kuan, you wrote:

1. Annual sales has dropped for the company's 2 largest geographical areas, ASEAN and North Asia from 2019 to 2020. While sales in North Asia has picked up from 1H20 to 2H20, ASEAN sales is still slow to recover. Do you see an improvement in sales in ASEAN in 2021, given that it's often touted as the next growth frontier and if so, in which industries do the company have major exposures to in ASEAN?

The impact of COVID-19 was felt most in the second and third quarter but in the fourth quarter, following a more positive business sentiment, we saw a pick-up in business activities across all our geographic market segments. ASEAN and North Asia, being our 2 largest market segments, contributed the most to the sales growth in fourth quarter compared to the second and third quarter. Given our extensive footprint in Asia, especially in ASEAN countries, any recovery in sales is likely to be led by Asia. As you have rightly said, ASEAN is the next growth frontier along with China. In terms of industry segments, we foresee the electronics will be a key driver given the rapid adoption of digitalisation and automation in the new norm, followed by personal care and cleaning industries.

2. This question has been raised before, but are there plans to increase liquidity in the company's shares? If anything, it has been following over the past few years and is a detriment to the company's ability to draw more investors.

The Company has no control over market activities but will focus on enhancing long term shareholders value. Over a period of 10 years from 2010 to 2019, we have paid dividends totalling 12.2 cents per share and our share price has appreciated from 19.8 cents per share as at end of 2011 to 33 cents per share as at end of 2020. We will continue to work hard to preserve and enhance our shareholders value.

The following charts show our share price performance over the last 1 year from 1 March 2020 to 1 March 2021.

Dear Peggy, you wrote:

3. With opening-up of business activities, do you expect stronger recovery in demand for your products? If so, which country do you see greater potential?

Please refer to our answer to question 1.

4. Can you explain why the different currencies (eg US$, AUD) have diverse impact on your earnings?

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures. For instance, we may buy products in United States Dollar and sell them in Singapore Dollar and any fluctuation in the exchange rate will have an impact on our earnings. Whenever possible, we will buy and sell in the same currencies to reduce our exposures. Any net exposures are hedged using foreign exchange contracts.

5. How do political uncertainty affect your business? For instance, in Thailand and Myanmar.

The pro-democracy protests in Thailand has gone on for several months. During this time we have not experienced major impact on our business. Our associated company there, which is listed in the Thai stock exchange, reported better results for FY2020. Mirroring global trend, the Thai economy is expected to grow this year following a decline in 2020.

Although our associated company has a joint venture in Myanmar, it has treaded very cautiously having considered the fact that it is still lacking in infrastructure, regulatory and financial framework. At this point in time, given the political uncertainty we will be monitoring the situation closely.

Dear Darryl, you wrote:

6. Liquidity on Megachem shares is really low with little or no trades at all on most days. Are there any plans to boost liquidity? Are there plans to boost investor awareness of the company? Why is there a need to stay listed when Megachem does not appear to require funding from the equity markets and also considering the costs from listing?

Please refer to our answer to question 2.

Despite the low liquidity, we have maintained a robust investor relations program by engaging actively with our investors and shareholders via analyst briefings, online Q&A and AGM. Independent research coverage is also available at our website to aid investors in their investment decision.

The listing status has enabled us to enhance our business profile and adds credibility to our relationship with business partners.

7. Are there any plans to acquire smaller chemical companies in order to boost growth?

Our business model has been tested and is proven to be right and sustainable so far. Therefore, with regard to your question of our mode of business expansion, we take the position that the current strategy remains appropriate although we do not rule out the possibility of embarking on acquisition as a strategy to accelerate our growth.

Dear Yvonne, you wrote:

8. Why are you building a warehouse in Malaysia?

The key objectives of this are:

  1. to improve our productivity through better asset utilisation and increased process efficiency.
  2. to manage increasing cost pressures. Faced with increasing warehousing cost, we decided to reduce reliance on third party warehouses by expanding our own warehousing space, hence minimising warehouse cost increases.
  3. To enhance our asset base. These properties are tangible assets which will, in the long term, strengthen our balance sheet.

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