The renewed excitement in recent months notwithstanding, the moribund state of the stock market through most of the first half of this year is hard to forget. Such a weak market had in fact frozen out initial public offerings, for who but the bold few would dare resort to equities to raise capital at a favourable pricing?
Even so, the first new offering this year is set to come from industrial chemicals distributor Samchem Holdings Bhd with a scheduled listing date of June 23.
The timing, barring further volatility, seems favourable at this point. As many counters have risen to full valuations, investors may turn their attention to this new issue for an attractive buy.
Samchem is in the business of distributing chemicals namely polyurethane (PU), intermediate and specialty chemicals. The company was founded by its managing director, Ng Thin Poh some 20 years ago. In the last three years, it has grown at a compounded rate of 18%, while over a 20 year period, it has chalked up a 36% growth.
Malaysia’s industrial chemicals market was worth RM33bil in 2007. The market size for industrial chemicals distribution, specifically for PU chemicals, intermediate chemicals and specialty chemicals, is estimated at RM1bil, of which Samchem holds a market share of 33%.
Over the next three years, Samchem is looking to double its overseas contribution to 10% from 5% currently, spearheaded by its Vietnamese market.
Presently, it distributes over 400 products, half of which involves formal distributorship rights from world-renowned chemical manufacturers such as ExxonMobil, Shell EP and BASF Petronas, apart from many others.
In Malaysia, it has an extensive distribution arm while it has smaller operations in Singapore, Vietnam, Indonesia, Hong Kong and China. Collectively, Samchem has over 2,500 customers.
For its financial year (FY) ended Dec 31, 2008, Samchem made a net profit of RM12.2mil on the back of RM355.5mil in revenue.
Although Ng expects the current financial year to be challenging, he is confident that the company can maintain the profit level achieved in the year before.
The kicker, however, may come in FY10 as Ng expects Samchem to post double-digit growth. For this, it is banking on three main drivers – increased contribution from Vietnam, more distributorship rights and its own blending and drumming plant.
Ng is eager to replicate his Malaysian business model in Vietnam, which makes up half of the sales raked up from its overseas markets. Samchem plans to set up marketing offices in Hanoi and Ho Chin Minh this year.
Vietnam, he says, is undergoing rapid industrialisation with the opening up of its economy to foreign trade and investment.
“It is a new market and there is a lot of activity, hence we are expecting additional demand for industrial chemicals. Most of our clients are multinationals with global networks. Our niche is our ability to offer competitive pricing and consistent delivery 24/7,” he says.
Samchem also plans to expand its recycling and production of reconditioned drums in the country. (The drums are used to store and package its chemicals and their production is currently outsourced by the company.)
Samchem plans to construct a chemical blending and drum recycling plant in Telok Gong, Klang by 2010 to cater to the demand for customised solvents and enable the group to produce its own reconditioned drums. Both plants will create a new revenue stream for the group.
“Once we do it on our own, at the very least, we will see a cost savings of RM1mil per year.
“Eventually we also hope to sell our recycled drums. We use about 10,000 drums a month.
“We plan to collect the used drums, totalling some 12,000 for a start and re-use them. A reconditioned drum costs RM35 to RM50 depending on steel prices. We hope to net RM8 to RM10 per drum,” says Ng.
Over the week, the company opened its RM8mil storage and blending plant in Nusajaya, Johor from which it will start to recognise earnings beginning the third quarter this year.
“We chose to build our plant in Nusajaya because of its proximity to Singapore. Singapore is an international trading hub for chemicals with a high level of volume and activity. Singaporean suppliers choose to come to us because cost is a lot higher in Singapore,” he says.Samchem’s offering involves a public issue of 21.36 million new 50 sen shares and offer for sale of 19.5 million existing 50 sen shares at an issue price of 71 sen each. Based on FY08 earnings, the stock is trading at a price earnings of 7.8 times.
Of the public offer, 6.8 million shares will be made available to the Malaysian public, 3 million to eligible directors, employees and business associates of Samchem, 8.1 million for private placement to approved bumiputra investors and 3.4 million for private placement to identified investors.
The group is expected to raise a minimum of RM11.04mil or a maximum of RM15.2mil from the exercise. It will also raise RM13.85mil for promoters in the offer-for-sale shares.
Some RM4mil from the proceeds will be used for working capital, including financing its new marketing office and warehouse in Vietnam, RM3mil for acquisition of plant and machinery, RM500,000 for purchase of trucks and RM3.5mil to defray the listing expenses.