Multi-Chem Limited - RHB Invest 2020-12-01: Little-Known Net Cash Tech Gem


Multi-Chem Limited - Little-Known Net Cash Tech Gem

Multi-Chem - Undiscovered gem in Singapore’s technology space.

  • As at 1H20, Multi-Chem (SGX:AWZ)’s net cash stood at S$71.1m or 62% of its current market cap. Management owns c.80% of the company and has shown a great track record in rewarding shareholders with dividends.
  • Multi-Chem enjoyed stable earnings from FY15-19 and is likely poised for further strong growth in FY20F – 1H20 PATMI surged 84% to S$7.3m, if prorated, represents only 7.8x FY20F P/E and a lower 3.9x ex-cash P/E.

Riding on higher demand of IT related products.

  • Multi-Chem's IT distribution business grew 13.9% y-o-y to S$225m in 1H20, mainly due to an increase in demand arising from the push in and increased reliance on digital technologies during the COVID-19 pandemic. We believe that this trend is set to continue with the further advancement into 5G, rise in e-commerce and increased reliance on technology for more companies even as the pandemic subsides.
  • Multi-Chem also provides IT security solutions and training which should further be in demand with the increase need for data protection. As at 1H20, this segment made up c.99.5% of total group 1H20 revenue.

Attractive historical yield of 5.2% with potential further upside.

  • With a strong balance sheet making up S$71.1m of net cash, Multi-Chem's management has been rewarding shareholders with stable and sustainable dividends over the past years. It has even shown to be willing to pay more dividends if profitability increased with the payout ratio ranging from 40% to 75%. See Multi-Chem Dividend History
  • With profitability expected to increase along and a brighter outlook, we are positive on Multi-Chem maintaining the dividend ratio range, with the possibility of an increase going forward especially in FY20F where it will likely continue its strong performance into 2H20F.

Attractive valuation as compared to peers.

  • Historically, Multi-Chem has always traded about 10x P/E. However, peers are trading at 10-12x P/E. In addition, the fundamentals of the company have been improving over the years as it toned down its printed circuit board (PCB) business, while growing its IT distribution business.
  • Multi-Chem has also generated consistent positive cash flow, building its healthy cash position over time despite giving attractive dividends to its shareholders. In reference to its 1H20 PATMI, if pro-rated, represents only 7.8x FY20F P/E and a lower 3.9x ex-cash P/E – way below its historical average and that of peers.
  • See Multi-Chem Share Price; Multi-Chem Target Price; Multi-Chem Analyst Reports; Multi-Chem Dividend History; Multi-Chem Announcements; Multi-Chem Latest News.
  • We think that the re-rating of Multi-Chem will likely come when it announces its full-year results, which should justify its strong growth trend and outlook.

Jarick Seet RHB Securities Research | 2020-12-01
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998 SAME 99998