Multi-Chem Limited - CIMB Research 2016-12-01: Stopping hackers in their tracks

Multi-Chem Limited - CIMB Research 2016-12-01: Stopping hackers in their tracks MULTI-CHEM LIMITED AWZ.SI

Multi-Chem Limited - Stopping hackers in their tracks

  • Multi-Chem Limited (MC) used to be a printed circuit board (PCB) drilling service provider. Today, MC has successfully diversified into the IT distribution business.
  • Its IT business carries best-of-breed IT security products and MC is also involved in training for such products.
  • We note that the company has been in a net cash position over the past five years and has also rewarded shareholders with dividends.
  • MC trades at historical FY15A P/E of 11.0x. Historical dividend yield was 5.66%.



What it does 

  • We visited Multi-Chem Limited on 10 Nov 2016. MC started off as a PCB drilling service provider and distributor of specialty chemicals and materials to PCB manufacturers. 
  • MC was incorporated in 1985 and listed on SESDAQ in Jan 2000 and was upgraded to the Main Board in Nov 2000. 
  • In May 2002, MC diversified into the IT distribution business (M. Tech).


PCB drilling business 

  • The PCB drilling business is based in Kunshan, eastern China. MC has 140 CNC (computer numerical controlled) drilling machines and 13 laser drilling machines in China. According to management, Samsung Electronics is the key customer for its China operations, and accounts for c.75% of business. 
  • Management also estimates its utilisation rate to be c.70%. In FY15 this segment accounted for 7% of revenue and 29% of PBT. The FY15 PBT margin was 10%.


IT security business 

  • Under the IT distribution business, M. Tech carries best-of-breed products in 29 cities in 15 countries. In 2004, M. Tech started a training business. Key principals include Blue Coat, Check Point, RSA and Riverbed. M. Tech conducts training courses for MobileIron, Solarwinds and others. 
  • In FY15, this segment accounted for 93% of sales, 71% of PBT and generated a PBT margin of 1.9%, according to management.


Outlook 

  • Management expects the PCB business to remain challenging given continuous price pressure. 
  • MC believes the IT business will offer more opportunities. Management noted that a Forbes article in Dec 15 stated that cybersecurity spending will reach US$75bn in 2015 and is expected to grow to US$170bn by 2020.


Shareholding structure 

  • The three major shareholders own 79.8% of the company. Mr. Foo Fang Yong, a director of the company, is a son of Mr. Foo Suan Sai and Madam Han. 
  • In the past five years, MC has not undertaken any equity fund raising from the stock market.


Net cash balance sheet; dividend yield stock

  • Over FY11-15, the average payout ratio was 60% and the balance sheet was also in a net cash position. 
  • Net cash per share, as at 9M16, is 48% of its share price (S$0.585 on 30 Nov 2016). 
  • Dividend yields have ranged from 5.6% to 7.5% over FY11-15. 
  • In 1H16, MC declared an interim DPS of 1.11 Scts. 
  • We note that based on its historical Sep-16A financials, MC is trading below its *net-net value of S$0.801.


* Net-net is a value investing technique developed by Benjamin Graham in which a company is valued based solely on its net current assets. Benjamin Graham advocated making adjustments to items in current assets to derive realistic liquidation values.
Here, we make no adjustments and calculate net-net based on actual reported financial data as at Sep-16A.


NOT RATED
Target Price: N/A




William TNG CFA CIMB Research | http://research.itradecimb.com/ 2016-12-01
CIMB Research SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998 Same 99998






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