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

Dear Jayster, you wrote:

Why has MegaChem invested in Megalatexs in Thailand which makes bedding products which has nothing to do with its core business?

Megalatexs Co Ltd is 99.99% owned by MegaChem Thailand Limited which is in turn owned 48% by MegaChem Limited. Its principal business is the manufacturing of bedding products such as pillows and mattresses. Using 100% natural latex to produce, its products are targeted at the “Healthy Lifestyle” segment of the market where the growth potential is deemed to be high.

The production of pillows and mattresses requires chemicals for treating the latex and we are currently supplying chemicals to the rubber industry.

Our partner in Thailand has secured the services of industry experts as well as good sources of the latex. Thailand, being the largest producer of rubber in the world, presents cost advantages for Megalatexs.

MegaChem Thailand's venture into this business is in line with its strategy of building another engine of growth to bring its business to a higher level.

Dear Daniel Lim, you wrote:

Why has the company expanded its presence in India and Vietnam? I feel China has greater growth potential given its booming economy.

MegaChem already has a presence in China. With the expansion into India and Vietnam, we are now present in three of the biggest and most promising markets in the coming years which will form the platform for our next phase of growth.

Dear Selena Tan, you wrote:

Why has the company moved to the Catalist board instead of upgrading to Mainboard status?

While we have moved to the Catalist, we do not rule out the possibility of upgrading to the Mainboard in the future.

Dear Alvin Ho, you wrote:

Oil prices has been rising since the start of the year. What steps have MegaChem taken to avoid the erosion of margins which occured the last time when oil price surged?

In general, the escalating oil price has both a 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 dampens demand and the overall economy, as manufacturers and consumers curtail their purchases

Companies that make basic chemicals, commonly known as the commodity chemicals, are most affected by higher raw material costs, 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.

As we are mainly in the specialty chemical business, the direct impact of higher oil prices on us is less as compared to a commodity chemical company.

Our gross profit margin remained relatively stable for the full year of 2009 despite price pressures for a large part of the first half of 2009. This is due largely to our strategy of refocusing our purchasing and sales at higher margin products. In addition prices began to stabilise in the second half of 2009 which allowed us to register higher gross profit margin in the second half.

Dear Terence Boh, you wrote:

You are paying out a final dividend of 1 cent per share for FY2009. Does the company have a fixed dividend policy?

We take into consideration factors such as our current and future cashflows, level of profit for the year, capital structure and market conditions to determine the amount of dividend to pay to our shareholders. Going forward if cashflow allows we will consider paying interim and final dividends as well as adopt a higher dividend payout ratio to give our shareholders a better total shareholders' return.

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