Multi-Chem Limited - RHB Invest 2021-05-05: IT Product Supplier With Net Cash


Multi-Chem Limited - IT Product Supplier With Net Cash

  • Significantly undervalued – Multi-Chem is trading at 6.5x FY20 P/E and 3.2x ex-cash P/E;
  • Attractive dividend yield of 4.4%;
  • Riding on the surge in demand for IT-related products.

Multi-Chem - Company Profile

  • Multi-Chem (SGX:AWZ), through the M.Tech Group, has been distributing IT products since 2002. M.Tech Group is a leading regional cyber-security and network performance product value-added distributor. It offers best-in-class products from industry-leading vendors, and has a presence in 29 cities across 15 countries. Today, this is the main business for the group, and accounts for over 99% of revenue.

Multi-Chem - Investment Highlights

Riding on the growing demand for IT-related products.

  • The value of Multi-Chem’s IT distribution business grew by 5.3% y-o-y to S$477.5m in FY20, mainly due to an increase in demand arising from the growing dependence 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 activities, and increased reliance on technology – even as the pandemic subsides.
  • Multi-Chem also provides IT security solutions and training – which should see further growth in demand, in tandem with the increasing need for data protection. As at FY20, this segment accounted for about 99.5% of FY20 revenue.

Attractive historical yield of 4.4%, with upside potentially increasing.

  • With its strong balance sheet (S$72.9m in net cash), management has been rewarding shareholders with stable and sustainable dividends. It is even willing to pay more dividends if profitability improves, with payout ratios ranging between 40% and 75%.
  • With profitability expected to increase and prospects continuing to improve, we believe Multi-Chem can maintain – or even grow – this payout ratio, especially if it charts a strong performance this year as well.

Attractive valuations vs that of peers.

  • Historically, Multi-Chem has always traded at about 10x P/E, compared with its peers’ 10-12x P/Es. Its fundamentals have been improving over the years, as it toned down its printed circuit board (PCB) business, while growing the IT distribution segment. The company has also generated consistent positive cash flow, building its healthy cash position over time, despite giving attractive shareholders.
  • Multi-Chem’s FY20 PATMI reflects just 6.5x FY20 P/E and a lower 3.2x ex-cash P/E. This is well below its historical average and that of peers. We think a re-rating will likely come, when the company announces its results – which should justify its strong growth trend and outlook.

Multi-Chem - Company Report Card

Latest results.

  • Multi-Chem's PATMI grew by 127% y-o-y in FY20 to S$17.8m, backed by a 5% y-o-y growth in revenue to S$479.7m. The growth in revenue for FY20 was mainly due to the increase in customer demands arising from greater reliance on digital technologies during the COVID-19 pandemic.

Balance sheet/cash flow.

  • As at end-FY20, Multi-Chem’s net cash position improved to be equivalent to 52% of its market cap. We expect this to continue growing, as it continues to generate positive cash flow.


  • Multi-Chem’s ROE has grown steadily over the years from 7.8% in FY18 to 11.5% in FY19 and 19.6% in FY20. We expect ROE to increase steadily, in line with its strong performance.


  • Multi-Chem continues to reward shareholders with attractive and sustainable dividends, representing a yield of 4.3%.


  • Multi-Chem's founding shareholder and CEO Foo Suan Sai has more than 20 years of experience in the PCB industry, of which the last 29 have been spent building up the company. Foo is responsible for the overall direction and development of Multi-Chem.

Multi-Chem - Investment Case

Undiscovered gem in Singapore’s technology space.

Jarick Seet RHB Securities Research | https://www.rhbinvest.com.sg/ 2021-05-05
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000