Dear all,

Megachem: FY22 Revenue Reaches All-Time High

Megachem recorded lower 2H22 revenue of S$68.6m, down 6.1% yoy as demand for specialty chemical declined, with companies switching their strategy to destocking of inventory on the back of economic uncertainty. Revenue for FY22 stood at S$143.8m, up 3.5% yoy as economies reopened in 1H22. Revenue in 2H22 and FY22 were up 18.1% and 26.3% above pre-pandemic levels respectively as a result of diversification of products and services. The top-line was mainly bolstered by the ASEAN market, up 8.7% yoy and forming 58% of sales. Middle East and Australia also recorded healthy growth of 35.1% and 10.3% yoy respectively.

2H22 gross profit stood at S$15.8m, down 10.9% yoy due to the higher costs of raw materials as inflation hiked. Gross profit margin was 23.0%, down 130 bps yoy. Net profit was S$1.6m, down 61.8% yoy on the back of higher warehouse storage charges, interest rate and stronger US dollar. Net profit margin was 2.3%, down 350 bps yoy. The bottom-line for FY22 observed better results, propped up in 1H22. Gross and net profit margins were down 70 and 160 bps yoy respectively.

Notwithstanding, we have raised our ASP and volume forecast to 7% growth from 0% and 2% respectively due to key drivers: (i) Sticky relationships and higher pricing power, (ii) Increasing focus on customized solution, (iii) Shift towards higher margin segments indifferent to economic cycles (eg. Biotech – FY17: 17% of sales, FY22: 22% of sales), (iv) Ventures into new industries (eg. Automobiles, Renewables), (v) Limited competitors, and (vi) China’s reopening. As its products are generally price inelastic, the higher costs can be easily passed on to its customers upon renewal of contracts. Margins should improve in the next 2 years with better cost management and healthier orderbooks.

Megachem is trading at 0.5x P/S and 1.3x P/B.