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.

Best Regards,
The Management Team
MegaChem Limited

1. Dear Hwee Ching, you wrote:

I find it strange that your sales to South America have surged given that the currencies in Argentina and Brazil has fallen. May I know which country in South America is fuelling this surge in demand and which sector, example electronics, construction?

Most of our sales in this region come from the Paint and Construction sectors in Venezuela. Over the years Venezuela has seen a number of currency devaluation. Nonetheless, as we price our products in US Dollars, we protect ourselves from currency risk. During these times, although we observed payments from customers there were slower, they have never defaulted. We will remain vigilant in monitoring our exposure to this region.

2. Dear Jayster, you wrote:

Your increased exposure to South America has led to an increase in trade receivables turnover to 85 days. You mention these customers took longer to pay, does it mean that the company is risking payment default for sales growth? Are these customers new or existing customers?

The Venezuelan government imposes strict currency controls with one measure being the control over payment of foreign currency overseas. All payments overseas are subject to approval from the central authority which at times takes longer than usual. Despite these controls, we have not faced payment default from our customers there since we started exporting to this country many years ago. We view this market as a niche market where we are very selective in choosing who we deal with. Many of our customers have proven over many years that they are credit worthy.

3. Dear Alvin, you wrote:

You mentioned you have no intention to acquire more shares of Meghmani and subscribe for their IPO out of goodwill. Why aren't you buying more since the profits of Meghmani has started to rise and the acquisition of a manufacturer in low-cost india would help to increase your margins in the long run. Have you any plans to grow via acquisition in the near future or it is still on an organic growth path?

The investment in Meghmani was done with the primary objective of establishing good relations with them. Since then they have been a valued supplier from whom we have enjoyed competitive pricing. Further development on the business front will however not be dependent upon acquiring more shares in this company.

While we do not rule out future acquisitions, we intend to take an opportunistic approach in this aspect. Our growth drivers currently remain that of (i) leveraging on our strong pan-Asian network to ride on the growth opportunities in this region and (ii) to upscale our contract manufacturing business activities to form a second pillar of growth for the Group.

4. Dear Ken, you wrote:

Your labour cost is very high. It takes up almost all of your total operating expenses. Have you taken any steps to take advantage of the government generous incentive to increase productivity using ICT solutions to lower manpower cost? I feel in the logistics sector, warehouse automation and ICT integration can lower operating expenses significantly.

Thank you for your constructive suggestions.

Our business model is very customer and service-centric. As such our human capital is the most important resource of the Group. This explains the high staff cost component within our cost structure. Over the past few years we have been working actively with government agencies to explore areas of cost reduction and productivity improvement. One of the key areas where we have enjoyed much support from them is in the expansion of our production facility. This came in the form of grants and tax incentives.

We will continue to explore areas of productivity improvements.

5. Dear Ting Ling, you wrote:

You mentioned the development of shale gas in the US. How does it help the Company grow its business? You don't even have an office in the US. Do you mean cheaper raw materials to make chemicals or suppliers for your distribution business?

You have rightly stated that the development of shale gas in the US has resulted in cheaper chemicals produced there. This creates opportunities for us to develop more supply sources from the US thus strengthening our competitiveness in the market. With that, we are then able to further extend our supply network beyond Japan, Europe and China.

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) 6221 5590) at 1 Robinson Road #21-02 AIA Tower Singapore 048542.