MEGACHEM LIMITED (SGX:5DS)
Megachem Limited - Remained Resilient Amidst Challenging Business Climate
MegaChem's FY2020 net profit rose despite a fall in sales.
- MegaChem (SGX:5DS) reported a 7.5% drop in revenue from S$113.8 million in FY2019 to S$105.2 million in FY2020. See MegaChem's announcements. The fall in sales was largely due to a decrease in demand for products in the non-essential industries which were forced to temporarily halt operations as a result of the COVID-19 situation in early 2020. Both segments reported lower sales for FY2020, in which the Distribution segment recorded a 7.5% fall to S$101.8 million while the Manufacturing segment recorded a 7.4% fall to S$3.5 million.
- Geographically, MegaChem saw biggest decline in sales in its two largest markets in ASEAN and North Asia, which recorded lower sales of 10.9% to S$65.5 million and 17.9% to S$12.8 million respectively. This was partially offset by higher sales in Europe, Australia, South Asia and America.
- Despite a fall in revenue, MegaChem reported a higher net profit for FY2020 on the back of higher other income, higher contribution from associated companies as well as lower operating expenses and financial cost.
- Other income more than tripled to S$1.9 million due to higher grant income, net foreign exchange gain and fair value gain from listed equity security, while
- MegaChem’s share of profit of associated companies rose 43.6% to S$1.6 million as a result of higher demand for cleaning chemicals due to the COVID-19 situation in the first half of the year.
- Total operating expenses and finance costs were reduced by 3.2% to S$24.1 million mainly due to lower travelling and transport expenses and finance cost.
- As a result, MegaChem achieved a higher net profit after tax of 32.0% to S$5.3 million as compared to S$4.0 million from a year ago. Excluding grant income of approximately S$1.2 million, MegaChem’s net profit after tax still managed to expand 3.9% year on year in FY2020.
Diversified business model continued to mitigate COVID-19 impact.
- As chemicals are considered essential products, MegaChem was allowed to operate within certain restrictive measures. While sales to non-essential industries such as construction, coatings and metal finish sectors were affected, MegaChem’s diversified market segments allow it to benefit from other growth markets, such as the electronics and healthcare sectors, which benefited from an increase in demand for computers, semiconductors and cleaning products.
- On the supply side, MegaChem’s diversified supply sources also ensured that impact of the supply chain disruption on the Group was not significant.
Maintain BUY on MegaChem at the target price of S$0.50 per share.
- MegaChem is currently trading at 12.9x our FY2021F P/E. Given the Group’s resilient showings in the challenging global business climate helped by the success of its diversified business model, coupled with improvement in the 2H2020 financial performance, we are cautiously optimistic that MegaChem will be able to push on ahead in FY2021.
- See MegaChem Share Price; MegaChem Target Price; MegaChem Analyst Reports; MegaChem Dividend History; MegaChem Announcements; MegaChem Latest News.
- Nonetheless, as we continue to monitor the impact of the COVID-19 pandemic, we may need to adjust our forward assumptions. At this point, however, we maintain our BUY rating on MegaChem with target price at S$0.50 per share.
Lam Wang Kwan
SAC Capital Research
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https://www.saccapital.com.sg/
2021-03-01
SGX Stock
Analyst Report
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