Investment Merits

• Trading presence in emerging markets

• Long term relationship with downstream majors

• Infrastructure already in place to enable growth

Company Profile

Samchem Holdings (Samchem) is a third party distributor of chemical products, with presence in Malaysia, Singapore, Indonesia, and Vietnam.

Highlights

Regional distributor of chemicals. Samchem is a distributor of industrial chemicals, ranging from polyurethanes chemicals to intermediate and specialty chemicals. The company has been operating for more than 20 years and distributes 400 types of petrochemical products across Malaysia, Indonesia, Vietnam and Singapore, with a customer base of more than 2,500. Aside from distribution, Samchem also has a solvent blending segment capable of blending customised solvents from 5,000 to 20,000 litres.

Seal of approval from MNCs. Samchem holds formal distributorship rights for more than 200 products from major chemical manufacturers such as ExxonMobil, Shell, Petronas Chemicals, BASF, and many other players. Samchem is able to obtain formal distributorship rights from major chemical companies as its logistics infrastructure is of global standard.

Time to milk the cow. Management indicated that it has spent MYR10m in capex over the past five years to upgrade its logistics infrastructure across the region. The improved infrastructure allows Samchem to comply with strict health, safety and environmental requirements of chemical manufacturers, in addition to enhancing its distribution capabilities.

Company Report Card

Latest results. In FY16, Samchem recorded PATAMI of MYR15m, an improvement of 275% from its FY15 performance. This is attributed to higher sales from its improved logistics and infrastructure facilities.

Balance sheet/cash flow. Samchem was in a net debt position of MYR80m as at end-2016, due mainly to capex for its expansion drive.

ROE. Samchem registered ROE of 13% in FY16. We expect major improvements in ROE as net profit is expected to reach MYR60m in FY17.

Dividend. Dividend has been increasing on an annual basis. Samchem paid out MYR6m in FY16, translating to a DPS of 4.5sen. The company has not set a dividend policy but we expect Samchem to pay out a similar amount in FY17.

Management. Samchem was founded in 1989 by Mr Ng Thin Poh, with 35 years of chemical distribution experience under his belt. Currently, Dato Ng Lian Poh is the CEO of Samchem, having started his career as a sales executive in another chemical distribution company before joining Samchem in 1996.

Recommendation

We like Samchem for its regional exposure in a resilient yet growing industry. We believe it is in an enviable position of being in a market with exponential population growth, which would in turn increase demand for chemical products. Samchem also has the backing of major chemical producers, given that its infrastructure, logistics and distribution channels are of global standards. We value Samchem at FY17F P/E of 14x, which is at a 30% discount to its competitor, Brenntag AG, arriving at our fair value of MYR3.10. We believe the 30% discount is justified due to Samchem’s relatively lower global market share. We do not have a rating on Samchem at the moment.

Source: RHB Securities Research - 5 May 2017