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 are reposted in blue followed by our replies in black.

Rgds,
The Management Team
MegaChem Limited

1. Dear Alvin Tan, you wrote:

Your sale to the US doubled from S$2.5M (1H FY2010) to S$5.2M (1H FY2011). Why the sudden surge in demand?

The increase in sales to this market for FY2011 came primarily from Venezuela. This is a niche market where competition is not as stiff as some of the more developed markets we cover and where we have fairly good market position given our years of experience there. Our good relationship with our customers there has contributed to steady growth over the years. 2011 good performance in this market is a culmination of many years of nurturing our customers' base and strengthening our position there.

2. Dear Ken Tay, you wrote:

Your impairment of trade receivables has increased from S$0.11 million in 2010 to S$0.23 million in 2011. Has management tighten the collection of receivables and more caution in granting credit to customers given the slowing global economy?

We started to tighten our credit management when the Euro debt problem surfaced in the second half of FY2011. Although impairment of trade receivables has increased, there is no significant deterioration in the quality of our trade receivables. We will continue to be vigilant in managing credits to our customers.

3. Dear Susan Tan Hwee Pin, you wrote:

The oil price rise a lot recently. Will it affect your cost of doing business?

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 lead to higher inflation and may dampen demand and the overall economy,
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. Demand for specialty chemicals is therefore not very sensitive to oil price fluctuations.

As we are mainly in the specialty chemical business, the direct impact of higher rising oil prices on us is less as 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.

4. Dear Ng Ting Ling, you wrote:

Your dividend goes up and down. Do you have a fixed dividend policy. Because your share is illiquid, if you have one, I think more long-term investors would be willing to buy into your company and hold on long term.

We have been paying consistently good dividend with dividend payout above 30% except for FY2008 when the world economy was in recession following the US financial crisis. The final dividend we are recommending for FY2011 when added to the interim dividend we had paid translates into a dividend yield which we believe is above the market average for listed companies in Singapore.

5. Dear Jayster, you wrote:

The cost of doing business in Singapore is very high, why buy a factory in Singapore to do manufacturing when you can do so in lower labour cost countries like China, India or Vietnam?

Our manufacturing plant produces chemicals based on customers' formulation. We term this custom-blending. For custom-blending business, a key consideration for our customers is whether their intellectual property can be protected. From this standpoint most of our customers have chosen Singapore as a preferred location because of its high standard of intellectual property laws and business integrity. We have also implemented measures that provide a high level of assurance to our customers that their formulations will be dealt with utmost confidentiality.

As for labour cost, it is a not a big factor in their considerations as the manufacturing of chemicals generally do not involve many workers. Labour cost is thus not a major cost component.

Dear Investors,

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.

Rgds,
The Management Team
MegaChem Limited

This announcement has been prepared by the Company and the contents have been reviewed by the Company's Sponsor, SAC Capital Private Limited, for compliance with the relevant rules of the Singapore Exchange Securities Trading Limited ("Exchange").The Company's Sponsor has not independently verified the contents of this announcement.

This announcement has not been examined or approved by the Exchange and the Exchange assumes no responsibility for the contents of this announcement, including the correctness of any of the statements or opinions made or reports contained in this announcement.

The contact person for the Sponsor is Mr Bernard Lim (tel : (65) 6221 5590) at 79 Anson Road, #15-03 Singapore 079906.