Megachem&rsquo s FY2025 earnings decreased by 50.6% due to softer demand, but the company maintained its dividend at one cent per share. Despite the challenging year, the company remains resilient and expects the global operating environment to remain challenging.

 

Between Aug 15 and 16, Megachem : 5DS 0% managing director Sidney Chew acquired 70,600 shares at S$0.37 per share. This increased his total interest in the one-stop speciality chemical solutions provider from 36.10 per cent to 36.15 per cent.

 

On Aug 13, the group reported that its H1 FY2024 (ended Jun 30) revenue increased 7.4 per cent from H1 FY2023 to S$65.2 million. With the results, Chew maintained that chemical demand is recovering, with key markets recording higher sales and inventory normalising. He also emphasised that the H1 FY2024 performance reflected the group&rsquo s resilience and robust business model, but that future growth depended on external economic and industry factors.

 

Megachem distributes over 1,000 types of speciality chemicals to more than 2,000 industrial customers, including many well-known multinational companies. The group serves diverse industries such as water treatment, metal finishing, construction, oil and gas, food and beverage, pharmaceuticals, polymers, coatings, electronics and more.

Megachem has received another insurance payout of some $4.4 million over a July 2023 fire at its warehouse at 132 Pioneer Road. 

 

This is the fourth payment received by the company, whose group managing director Sidney Chew had estimated that about $10 million worth of chemical materials were damaged in the 2023 incident.

 

In total, Megachem 5DS 0.00% has received nearly $12.3 million in insurance compensation. The first payment of $1 million was paid in October 2023. The second payment of $2 million was paid in December 2023. The third payment of $4.9 million was paid in May. 

&ldquo As our insurer has not completed their assessment, the company will provide updates to the shareholders if and when we receive any further material progress on this matter,&rdquo reads an Aug 23 announcement. &ldquo The insurance proceeds received this financial year is expected to contribute positively to the group&rsquo s financial performance for the current financial year ending Dec 31.&rdquo

 

 

Chemicals firm Megachem 5DS 0.00% has received another $4.91 million in interim insurance payout after its warehouse caught fire last July.

 

Coupled with the earlier payouts, it has received a total of $7.91 million to date. 

 

According to Megachem, its insurer has yet to complete its assessment.

 

The company says the insurance proceeds is expected to have a positive contribution to its financial year ending December.

 

" The commencement of the rebuilding of warehouse is pending regulatory clearance. The company will provide updates on any material developments in this aspect in due course," it adds.

Megachem warns that it will report lower earnings for 1HFY2023 ended June 30, due to inflationary pressure and a drop in demand after customers are done stocking up in the year earlier period.

 

However, it is unable to give more details on the potential impact it has suffered from a fire at its warehouse on July 5.

 

Back then, Sidney Chew, the company' s managing director, had told the Straits Times that the fire might have caused some $10 million in damages - a sum the company later clarified as a preliminary assessment.

 

Megachem expects to report its 1HFY2023 earnings on or about Aug 10.

On Apr 5, Megachem : 5DS 0% managing director Sidney Chew Choon Tee acquired 128,000 shares at S$0.50 per share. With a consideration of S$64,000 this increased his total interest in the one-stop specialty chemical solutions provider from 35.81 per cent to 35.91 per cent. Chew has gradually increased his total interest from 35.23 per cent at the end of 2019. Megachem will be celebrating its 35th anniversary in September 2023. Since its incorporation back in 1988 till now, the one-stop specialty chemical solution provider has distributed over 1,000 different types and grades of specialty chemicals, with a wide range of applications, to an established and diversified base of more than 2,000 industrial customers, comprising mostly well-known multinational companies.

 

Chemicals distributor and manufacturer Megachem 5DS 0.00%   has reported a 24.1% drop in earnings for FY2022 to $6.1 million, despite higher revenue.

 

The company enjoyed a 3.5% increase in revenue to a record of $143.7 million because of higher demand but higher interest costs, absence of government grants as well as poorer showing by its associates dragged the bottomline down.

 

The company plans to pay a final dividend of 1.2 cents, which will bring full year payout to 2 cents per share, representing a payout ratio of 45.4%.

 

&ldquo We are encouraged to have achieved a new record in our revenue, buoyed by good growth in our largest Asean market, and other significant regions including Australia and the Middle East,&rdquo says managing director Sidney Chew.

 

&ldquo Notably, the chemical industry saw escalated demand in the first half of 2022 but showed signs of slowdown towards the end of 2022 as companies started to destock their inventory. Nonetheless, the global-wide high interest rate and inflation environment has caused a dip in our bottom line,&rdquo he adds.

 

Chew expects the current FY2023 to be a difficult one because the weakness in industrial production, persistent high inflation environment and economic uncertainty.

 

&ldquo We will continue building on our strong foundations of a diversified geographic and product base, as well as capabilities in providing value-added solutions to a global customer base, to capitalise on opportunities when business conditions improve,&rdquo he adds.

Between Nov 24 and 25, Megachem : 5DS 0% managing director Sidney Chew Choon Tee acquired 10,000 shares at S$0.50 per share.

 

This increased his total interest in the one-stop specialty chemical solutions provider from 35.79 per cent to 35.80 per cent.

 

Chew has gradually increased his total interest from 35.23 per cent at the end of 2019. He was first appointed a director of the leading chemical player in Singapore and the region, in April 1989.

Between Nov 14 and Nov 15, Megachem : 5DS 0% managing director Sidney Chew Choon Tee acquired 33,700 shares at S$0.50 per share. With a consideration of S$16,850, this increased his total interest in the one-stop specialty chemical solutions provider from 35.76 per cent to 35.79 per cent. Chew has gradually increased his total interest from 35.23 per cent at the end of 2019. Chew was first appointed a director of Megachem in April 1989. On Oct 11, Megachem announced it had secured its first sustainability-linked financing of US$10 million from United Overseas Bank. Chew noted the sustainability-linked financing represented a key step in Megachem&rsquo s sustainability journey and a clear demonstration of its commitment to be a responsible member of the community, together with its customers and suppliers as well as other stakeholders. Megachem distributes over 1,000 different types and grades of specialty chemicals, with a wide range of applications to an established and diversified base of more than 2,000 industrial customers, comprising mostly well-known multinational companies.

 

The facility comes with pre-determined sustainability performance targets. 

 

Specialty chemical solutions provider Megachem has secured its first sustainability-linked financing from United Overseas Bank (UOB).

 

According to Megachem, UOB will offer the company a trade financing facility of US$10 million ($14.4 million). The facility comes with pre-determined sustainability performance targets, pegged to ratings by international sustainability rating agency, EcoVadis.

 

&ldquo This sustainability-linked financing from UOB is a key step in our sustainability journey and a clear demonstration of our commitment to be a responsible member of the community, together with our customers, suppliers, as well as our other stakeholders,&rdquo says Sidney Chew, managing director of Megachem.

 

Leong Yung Chee, head of group corporate banking, UOB continues: &ldquo Policymakers, consumers and regulators are employing increasingly stringent sustainability standards across all major industries, including chemicals. Megachem&rsquo s first sustainability-linked facility has demonstrated their commitment to a greener future.&rdquo

 

&ldquo To partner them on their sustainability journey, we are structuring this facility using a clear and transparent framework for tracking performance against pre-determined ESG markers. This greatly simplifies the process of accessing sustainable financing for global clients like Megachem,&rdquo he adds.

 

Chemicals distributor Megachem has reported earnings of $4.5 million for 1HFY2022, up 18% y-o-y. Revenue, meanwhile, was up 14.1% to $75.2 million.

 

The company plans to pay an interim dividend of 0.8 cent per share.

 

&ldquo Despite all the uncertainties in the first half of 2022, we delivered record high half year revenue and continued to expand in our growth markets,&rdquo says managing director Sidney Chew.

 

&ldquo The chemical industry delivered positive growth in the first half of this year as it benefited from inventory rebuilding and an increase in demand across many end-use industries, notwithstanding the ongoing supply chain constraints,&rdquo he adds.

 

The company says the chemicals industry is closely tied to the global economy whose outlook is uncertain.

 

Many of the raw materials used are subject to both price volatility and the lingering supply chain bottleneck. Megachem will not be immune to any changes in macroeconomic conditions, the company warns.

 

&ldquo With our extensive geographic footprint and comprehensive product range, Megachem will build upon the strong relationship that we have with both customers as well as suppliers across wide spectrum of industries and position the group for future growth,&rdquo says Chew.

 

&ldquo We will also continue to focus on identifying potential growth markets and dedicate more resources to be able to take on opportunities whenever they arise,&rdquo he adds.

 

SAC Capital analyst Lam Wang Kwan is keeping &ldquo buy&rdquo with an unchanged target price of 58 cents on Megachem as he sees the higher average selling prices (ASPs) for specialty chemicals to improve margins for the FY2022.

 

Supply chain disruption and demand uncertainty have caused Megachem&rsquo s customers to rethink their strategy for raw material procurement. Instead of bulk purchases and hold stock, they are looking to suppliers with a diversified geographical network that can deliver goods on short notice and in smaller quantity,&rdquo the analyst writes in his June 20 report.

 

&ldquo Megachem&rsquo s global network of warehouses and logistic supply bases in 11 countries is a competitive edge,&rdquo he notes.

 

In addition, customers seeking a supply of specialty chemicals could turn to Asia following the disruption in oil and gas supply, which negatively impact chemical exports out of the European Union (EU).

 

About 55% of Megachem&rsquo s sales are to the Asean markets, while 13% of sales are made to Europe. Another 12% of sales is made to North Asian markets.

 

On this, Lam is raising his FY2022 net earnings estimates by 6.7% to reflect the higher ASPs for specialty chemicals. The higher earnings estimates have also factored in improved margins.

 

&ldquo The higher ASP for specialty chemicals is driven by higher upstream crude oil and petrochemical prices,&rdquo the analyst notes. &ldquo From January to April, price of crude had risen 58%, and petrochemical prices were up 14%, according to ICIS Petrochemical Index. Singapore&rsquo s chemical export prices rose 6% in the first four months of 2022.&rdquo

 

&ldquo Our revised FY2022 and FY2023 [estimates] are premised on a 3% rise in chemical prices in FY2022 and a 1% decline in FY202E, on weaker macro-economic environment in FY2023,&rdquo he adds.

 

To this end, Lam has also estimated Megachem&rsquo s FY2022 net profit to grow by 2.6% y-o-y or 11.7% excluding the non-recurring government grants received in the FY2021.

 

The analyst has also noted that major chemical distributors have reported strong improvement in their revenue and operating income for the 1QFY2022.

 

This includes commodity chemical distributor PT Lautan Luas, which saw revenue surge 40.9% y-o-y and 10.2% q-o-q. Brenntag, too, reported a sales gain of 44.7% y-o-y and 12.1% q-o-q, with a bigger gain in operating EBITDA by 54.2% y-o-y and 33.7% q-o-q.

 

Finally, Lam sees Megachem&rsquo s gross margin in the FY2022 widening by 0.6 percentage points to 25.2%, which is aided by inventory stockpiled at end 2021.

 

However, Megachem will face higher working capital needs due to higher input costs.

 

A strong USD versus regional currencies will also pose some forex risks as raw materials are purchased in USD, while sales to countries such as Indonesia, China and Vietnam are settled in the local currencies, says the analyst.

 

On Jun 3, Megachem : 5DS 0% managing director Sidney Chew Choon Tee acquired 93,000 shares of the company at 46.5 cents per share. With a consideration of S$43,245, this increased his total interest in the one-stop specialty chemical solutions provider from 35.65 per cent to 35.72 per cent. His preceeding acquisitions were on Apr 13 with 200 shares acquired at 45.5 cents per share and between Mar 15 and 16, with 20,000 shares acquired at 45.0 cents per share. 

 

The company reported back in February that its net profit after tax in FY21 (ended Dec 31) increased 52.0 per cent to S$8.0 million on the back of a 32.0 per cent growth in revenue to S$138.9 million. Chew noted that the group achieved a new record in revenue, as business sentiments improved, and demand recovered, with higher sales volumes and chemical prices supporting a rebound in revenue in FY21 to better than pre-Covid levels.

 

In response to a question on the sensitivity of revenue to oil prices in an online Q& A with Investors in March, Megachem management noted that demand for specialty chemicals had been less sensitive to price fluctuations. The management team reasoned that oil prices had staged a remarkable rebound since the later part of 2020 which had pushed freight rates and chemical prices higher. However, the team noted that specialty chemicals, though not immune to oil price fluctuations, are less susceptible in comparison to bulk commodity chemicals, since they are a more downstream product and usage in the finished product is smaller.

 

Between Mar 15 and 16, Megachem $ MegaChem : 5DS 0% managing director Sidney Chew Choon Tee acquired 20,000 shares of the company at 45.0 cents per share.

 

This increased his total interest in the one-stop specialty chemical solutions provider from 35.63 per cent to 35.65 per cent.

SAC Capital analyst Lam Wang Kwan is remaining buoyant on Megachem with a &ldquo buy&rdquo call after the chemicals company saw a record year.

For the FY2021 ended December, Megachem saw its topline grow 32.0% y-o-y to $140.3 million, while its bottom line surged 52.0% y-o-y to $8.0 million, surpassing Lam&rsquo s full-year forecasts by 5.4% and 25.0% respectively.

 

Going into FY2022, Lam has raised his topline estimates for the year by 4.4% as he expects sales to remain elevated, driven by demand.

He expects the chemicals company&rsquo s growth momentum to sustain into 2HFY2022 driven by backlog as customers are restocking their inventories that were depleted during the pandemic. The surge in demand for chemicals as economic activities pick up across the world are another growth factor, writes Lam in his March 11 report.

As such, the analyst has upped his target price estimate to 58 cents from 55 cents previously, as he expects Megachem&rsquo s growth momentum to sustain albeit at lower margins.

 

&ldquo Global economic growth is estimated to be at [around] 4.4% and growth in emerging and developing Asia is at [around] 5.9% for 2022. However, we expect the exceptional operating margins to moderate to [an estimated] 5.7% in FY2022 and normalise further to 5.1% in FY2023,&rdquo writes the analyst in his March 11 report.

&ldquo Overall, our FY2022 bottom line estimates still increased by 23.0%,&rdquo he adds. Lam&rsquo s higher target price translates into an FY2022 P/E of 10.3x and P/B of 1.2x.

An adaptable business

In addition to the continuous tailwinds, Lam sees Megachem as being adaptable to changing demand.

 

&ldquo Megachem supplies a wide range of specialty chemicals used in many industries, and this insulates it from the vagaries of any single sector,&rdquo writes the analyst.

To be sure, the chemicals company benefitted from a surge in demand for specialty chemicals driven by cleaning and disinfection, technology and healthcare sectors in the FY2020. In FY2021, Megachem saw growth coming from the flavours, fragrance, construction and electronics sectors, notes Lam.

&ldquo Through its diversified sector and geographical coverage, Megachem has demonstrated that it is able to make quick adjustment to meet changing demand and supply to industries that are experiencing growth. The new Malaysia warehouse, which is near completion, will further expand Megachem&rsquo s capability. We believe the new warehouse can ride on the semiconductor sector growth in Malaysia,&rdquo he adds.

 

On Feb 28, Megachem $ MegaChem: 5DS 0% managing director Sidney Chew Choon Tee acquired 100,000 shares of the company at 45.0 cents per share.

 

This increased his total interest in the one-stop specialty chemical solutions provider from 35.56 per cent to 35.63 per cent.

 

On Feb 21, Megachem reported record revenue of S$138.9 million in FY21 (ended Dec 31), supported by recovery in both business segments and higher sales volumes and prices.

 

With the results, Chew maintained that 2022 is the dawn of a new growth cycle for the chemicals industry that will provide many opportunities to elevate Megachem' s business further, barring any unforeseen headwinds to the global economic recovery.

 

Megachem is a one-stop specialty chemical solutions provider that distributes over 1,000 different types and grades of specialty chemicals, with a wide range of applications to an established and diversified base of more than 2,000 industrial customers, comprising mostly well-known multinational companies.

 

Chemicals company Megachem has reported earnings of $4 million for 2HFY2021 ended Dec 2021, up 64.5% y-o-y. Revenue in the same period was up 37.1% y-o-y to $73 million.

For the whole of FY2021, earnings grew by 51.4% y-o-y to $7.76 million, on the back of 32% increase in revenue to $138.9 million.

The company attributes the higher numbers to both a higher volume of chemicals sold, as well as higher selling prices.

Megachem plans to pay a final dividend of 1.2 cents per share, bringing full year FY2021 payout to 2 cents. For FY2020, the company paid 1.5 cents in total. 

Sidney Chew, the company&rsquo s managing director is upbeat about this year&rsquo s business.

 

We believe 2022 is the dawn of a new growth cycle for the chemicals industry that will provide many opportunities to elevate our business further, barring any unforeseen headwinds to the global economic recovery,&rdquo he says.

&ldquo We will continue building on our strong foundations to capitalise on opportunities and realise our potential,&rdquo he adds.