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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.

Best Regards,
The Management Team
MegaChem Limited

1. Dear David Koh, you wrote:

How has record low oil prices affected your business?

In general, a decline in oil price can have the following impacts on the chemical industry:

  • Manufacturing and production costs typically decrease. This usually leads to lower product prices and correspondingly boosts consumer spending and that of the overall economy. As our specialty chemicals are sold to a wide spectrum of industries, it is expected to benefit our business;
  • Prices for chemicals in general may decrease in tandem with lower oil prices. However, there is a distinction between basic chemicals (or commonly known as commodity chemicals) and specialty chemicals. Specialty chemicals are considered products which are further downstream, in which the oil content and usage in finished products are lower as compared to basic chemicals. As such, the prices and demand of specialty chemicals are more resilient and less sensitive to oil price fluctuations; and
  • The volume of chemical purchases from the oil and gas sector may decline. However, our exposure to the sector is low and sales volume to customers in the sector is not significant.

We are, to a large extent, more involved in specialty chemicals. As such, the overall impact, taking all factors into consideration, has not and is not likely to affect us significantly.

2. Dear George Chen, you wrote:

Why sales from the US drop so much? I though the economy has recovered.

The America segment of our business refers mainly to the South America region. The decline in sales from the region followed our conscious effort to actively mitigate the potential risks in light of the current geopolitical climate there. By being more prudent in our approach, we believe that Megachem will be in a stronger overall position. We will continue to assess the situation carefully.

3. Dear Alvin Tan, you wrote:

  1. Is the profit margin higher for distribution or manufacturing?

    The profit margin for the manufacturing activity segment is higher than the distribution activity segment.

  2. Do you intend to increase manufacturing activity? The sales volume is little compared to distribution.

    We expanded the size and capacity of our contract manufacturing plant in 2012 and continue to seek opportunities to increase sales contribution from that segment. While our manufacturing activities and distribution operations are complementary to each other, they are not directly comparable since the nature of revenue derived from our manufacturing activities is mainly fee-based.

4. Dear Ng Ting Ling, you wrote:

Have you considered buying over Meghmani to increase your manufacturing capacity in a low cost centre like India?

We currently have no intention of doing so. As a business, the contract manufacturing of chemicals is not very labour intensive. Hence, labour costs typically would not be the paramount consideration in deciding on the location of the plant. Other important factors include the proximity of the plant to the customers' markets, availability of raw materials and whether the business environment enforces a good level of intellectual property protection.

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.

Best Regards,
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 Ms Alicia Kwan (Tel : (65) 6532 3829) at 1 Robinson Road #21-02 AIA Tower Singapore 048542.