Home > Investor Relations > Online Q&A

Email This Print ThisOnline Q&A

MegaChem Limited

Management Online Q&A With Investors

Dear Investors,

Thank you very much for the questions and the opportunity for us to respond. We hope you have a better understanding of our business through this online exchange.

Your questions will be reposted in blue italics followed by our replies in black.


Rgds,
The Management Team 
MegaChem Limited

Dear Jayster, you wrote:

What measures has MegaChem taken to combat the effects of high oil prices, global economic slowdown and inflationary pressures to deliver yet another half year of earnings growth?

In general, the escalating oil price has both direct and indirect impacts on the chemical industry at large. These effects include:

  • Increase in costs for the raw materials used to make chemicals.
    • 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.
    • 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.
  • Dampens demand and the overall economy, as manufacturers and consumers curtail their purchases.

The indirect impact of lower consumer spending and slower economic activity is however greater.

Lastly the higher global inflation will result in higher business cost especially in areas such as freight cost and warehousing cost.

Faced with these challenges, MegaChem will undertake a more cautious business approach with greater focus on profitability. We will try to pass on further increases in cost to customers so as to protect our profit margin. At the same time we will stay focus on strengthening our relationship with our MNC customers by providing them uninterrupted supply in the midst of very tight supply market condition.

We have proven our resilience in the past by staying profitable even under difficult financial and economic conditions. In fact we have been profitable since inception.

We believe our current strategy of building a global presence and developing our manufacturing business will buffer us against the challenges ahead of us and propel us to new heights in the next few years.

Dear Serene Lim, you wrote:

Noted trade AR increased from S$18M to S$20.9M and impairment of trade receivables increased from S$29K to S$153K.

Has the slowing economy affected the collection of AR from customers?

What measures has MegaChem taken to reduce bad debt, especially so as you sell to the world making recovery of debt difficult across geographical boundaries?

With the slowing economy comes potentially higher risk of customers' payment default especially from the smaller customers.

We will thus focus on MNC customers because of their strong credit-standing and will try to reduce our exposure to the smaller companies. A large part of our customer base are already MNCs which explains the low bad debt provision we have over the years.

Dear Gerald Tan, you wrote:

Your inventory (S$1.3M) and exchange differences (S$334K) in the cashflow statement has made operating cashflow (S$2.4M) negative. Noted borrowing has been made to bring the overall cash level (S$5M) higher.

Why have MegaChem chosen to raise debt instead of raising money thru equity?

Have the fluctuating FX rates recently due to the falling USD and strengthening SGD affected MegaChem's bottom-line or profit margin?

The current market condition is not conducive for raising equity funds. Besides we have substantial banking lines to fund our increase in working capital requirement arising from the higher sales.

We are a net buyer of USD against SGD as our purchases are mainly in USD. The fall in USD in the 1H 2008 has benefited us and in general, the weakening USD will be in our favour.

Dear Christine Tan, you wrote:

Which regions do MegaChem sees the most growth potential despite the difficult operating environment?

Given bad times expected ahead, is MegaChem looking out for "distressed assets", opportunities for the company to buyout its competitors at basement prices?

We have a strong market position in Singapore. We see any slowdown as opportunity for us to strengthen our position vis-à-vis our competitors.

The other markets that offer high growth potential in the coming years are Vietnam and Middle-east where we have already have a foothold and are now ready to accelerate our marketing activities. The other key markets where we have presence such as China, India, Indonesia, Malaysia and UK also have room for further growth.

We will continue to explore new markets with high growth potential.

If there is a good strategic fit for us, we do not rule out any acquisition opportunities. Some of the criteria for a good strategic fit include opportunities to:

  • Enlarge our customer base or market coverage
  • Strengthen our manufacturing capabilities
  • Provide further integration to our business

Dear Tan Lee Ting, you wrote:

I thought of buying MegaChem due to its consistent profit thru the years but hesitated due to the low share liquidity.

Has the management considered placing out share, share split or bonus issue to increase share liquidity?

If not, has the company considered privatising since being listed has only incurred listing cost and not much appreciation in share price despite MegaChem's consistent performance?

We have until end 2009 to decide whether to stay in Catalyst or upgrade to mainboard. If we move to main board, we will need to increase the public float and thus increase the liquidity of our shares.

We have no plans as this point in time to go private as we believe our performance will ultimately translate into better value for our shareholders.

Dear Investors,

We thank you all for your questions and hope we have sufficiently addressed your concern. We would like to assure all shareholders that the management is committed to growing this company and to enhance our shareholders’ value.

Regards,
The Management Team
MegaChem Limited