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MegaChem Limited

Management Online Q&A With Investors

Dear Investors & Stakeholders

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 Jennifer Tan, you wrote:

What is the management's strategy to mitigate high freight cost which is likely to be prolonged?

Many countries have stepped up their vaccination program and gradually reopened their economies. On the back of a strong rebound in demand and shortage of shipping capacity, freight rates have surged. Temporary closure of part of a Ningbo port terminal after a staff was tested positive for COVID-19, coupled with bad weather, has also contributed to huge hike in freight rates recently. The shortage of shipping capacity and surge in freight rates have affected the entire economy and chemical industry.

Nonetheless, given that demand has outstripped supply so far, we have been trying to pass the higher cost to our customers. This is evident in the fairly stable gross profit margin during the first half of this year as well as in the past.

One of the key elements of our strategy is diversification in terms of customer base as well as supply sources. This has increased our agility to respond to changing market conditions. With diversified sources of supply, we are able to switch from high cost to lower cost supply in response to the soaring freight rates. China and Japan, being closer to our major market segments, have therefore become critical sources of supply for us given that Asia is major contributor to our business and will be a key growth driver going forward.

2. Dear Boris Leong, you wrote:

Do you offer share options or plans to employees? How do you retain staff when in your distribution business, it is easy to setup shop once one has the necessary suppliers and customers contacts.

We do not have a share option plan for employees but our sales and country heads are incentivized through a performance-based reward scheme. In addition, our country heads have the option to take a small stake in the entity that he or she manages. Beyond quantifiable rewards, we seek to provide them with a fulfilling career and an environment that is conducive for their development.

3. Dear Simon Lim, you wrote:

Borrowing cost is very low now, will you borrow more to grow the business since your gearing is so low?

In response to price increase as well as shortage of supply and shipping capacity, we have been restocking our inventory to meet our customers' requirement. Our aim is to ensure there is continuity of supply for our customers. This requires higher working capital and consequently higher borrowings. Our gearing level has been low before the pandemic which provides us the room to gear up our business to take advantage of the pent up increase in demand we face currently.

4. Dear Douglas Soh, you wrote:

Your associate's demand seems to be stabilising, what is the plan forward? Increase capacity or price to boost profit?

After a surge in demand for chemicals used in cleaning industry at the initial stage of the pandemic, demand has stabilised. However, other segments have shown positive growth as COVID-19 restrictions have been gradually eased and economy began to reopen. In line with our plan to strengthen our market position in Thailand, we will enhance our product portfolio and put more resources in high growth sectors.

Dear Investors & Stakeholders,

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