MegaChem Limited - SAC Capital 2021-08-23: A Record 1H21, Tailwinds Sustainable Into 2H21

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MEGACHEM LIMITED (SGX:5DS)

MegaChem Limited - A Record 1h21, Tailwinds Sustainable Into 2h21

• MegaChem’s 1H21 results came ahead of our estimate as the Group recorded a 26.7% y-o-y rise in revenue to S$65.9 million (56.2% of our FY21 forecasts), achieving its best half-year sales figure. Gross profit margin dipped slightly from 25.4% in 1H20 to 24.9% due to both higher material costs and higher freight charges attributed to global shortage of shipping containers.
• Overall, MegaChem's 1H21 net profit grew by 34.0% y-o-y to S$3.8 million (92.7% of our FY21 forecasts).

Improved business environment benefited MegaChem.

• MegaChem (SGX:5DS) benefitted from the following tailwinds:
  1. demand uncertainty resulted in customers opting for smaller and more frequent purchases from distributors like MegaChem, instead of buying direct from chemical producers in larger quantities and the need to hold stock;
  2. supply chain bottleneck led to customers turning to supply that are nearer their manufacturing bases. MegaChem’s established global logistic network gives them the edge;
  3. surge in demand for specialty chemicals driven by cleaning and disinfection, technology and healthcare sectors; and
  4. firmer oil and commodities prices leading to an increase in the prices of specialty chemicals which are passed on to the customers.
• These trends are likely to stay post pandemic.

Diversified sector and geographical coverage to benefit from uneven global economic recovery.

• MegaChem caters to a board in Singapore, Malaysia, Indonesia, Thailand, Philippines, Vietnam, Myanmar, China, India, UAE, Australia and the United Kingdom serving customers in 32 countries around the World, MegaChem is able to effectively connect its suppliers and customers across the different geographical locations. ASEAN markets (59.4% of sales) are expected to lead growth in 2H as the economies re-open and manufacturing activities pick up with higher vaccination rate.

Maintain our call for MegaChem at BUY at a higher target price of S$0.55 (from S$0.50).

• Our DCF-derived (COE:8.3%) target a FY21E P/E of 11.4x and P/B of 1.3x.
• See
  • MegaChem's Share Price,
  • MegaChem's Target Price,
  • MegaChem's Analyst Reports,
  • MegaChem's Dividend History,
  • MegaChem's Announcements,
  • MegaChem's Latest News.
• We raised our FY21E topline estimates for MegaChem by 13.5% and bottom line estimates by 56.1%, to take into account more customer wins and improved net margins from operating leverage.
• We have also adjusted our FY22E topline estimates and bottomline estimates upwards by 12.5% and 41.9% respectively.

Lam Wang Kwan SAC Capital Research | https://www.saccapital.com.sg/ 2021-08-23

SGX Stock Analyst Report BUY MAINTAIN BUY 0.55 UP 0.500