Covid-19 thrusts chemical companies into the limelight

  • Corporate News
  • Saturday, 09 May 2020

Among the few that are in the supply chain of chemicals that cater to consumer products are Hexza Corp Bhd, Samchem Bhd and Hextar Global Bhd.

FOR the longest time, only companies in the business of producing and distributing petrochemicals and agrochemicals hogged the limelight.

However, the Covid-19 pandemic has put the spotlight on companies that are in the business of producing and distributing chemicals that are used for personal care and cleanliness such as sanitisers and disinfectants.

The price of the raw materials used to manufacture personal healthcare products such as isopropyl alcohol (IPA) and ethanol have gone up significantly in contrast to the prices of other chemicals that are generally down.

“The price of chemicals is generally down, except for some chemicals that are used to produce personal hygiene and personal care products such as sanitisers. Prices are up due to the short supply and huge demand in the materials used to produce the hand sanitisers and cleaning products, ” says an industry official.

There are many listed companies that are in the supply chain of industrial chemicals. However, the majority cater to light and heavy industries that are in the manufacturing and production of agrochemicals and petrochemicals.

Among the few that are in the supply chain of chemicals that cater to consumer products are Hexza Corp Bhd, Samchem Bhd and Hextar Global Bhd.

The others supply to industries such as the glove companies, fertiliser producers, plastic manufacturers and various other industries.

The advantage of companies producing chemicals for industries is that the usage is wide. It involves huge volumes and demand has always been steady. For instance, those producing chemicals for the glove and plastics industries have always had demand for their products until the movement control order (MCO), where some plants scaled down operations.

In contrast, those in the supply chain of chemicals routinely used in the making of sanitisers and disinfectant products have not seen a spike in demand until the recent Covid-19 outbreak.

More places – be it hospitals, long-term care homes, schools, stores, offices, and even homes – have stepped up on cleanliness as a layer of defence against the virus, increasing demand for certain types of chemicals needed to manufacture such products.

As far as Bursa-listed stocks go, a handful of companies involved in industrial chemicals for personal care have remained largely under the radar.

Where chemicals are concerned, the market seems more familiar with companies involved in the manufacturing and distribution of agrochemicals such as Luxchem Bhd, Southern Acid Bhd, and IMASPRO Corp Bhd, while for petrochemicals, it is dominated by the big boys – Petronas Chemicals Group Bhd and Lotte Chemical Titan Holdings BHd.

“You can term the chemical suppliers to consumers products as the back-room boys. They are low-profile, ” quips one dealer.

But these players are slowly beginning to be noticed by investors, looking for investing themes in a market that’s daunted by mostly negative news following Covid-19.

This week, Hexza saw active trading on expectations that the company would benefit from a surge in demand for ethanol, a component in sanitiser products.

In five days, the stock had shot up close to 30% to hit a one-year high of RM1.21 at the time of writing on May 6.

Hexza is involved in the manufacturing of chemicals. It specialises in two products, namely, adhesive resins, which are used in the production of wood-based goods, and the manufacturing of high-quality and low-impurity ethanol.

According to CGS-CIMB, its ethanol manufacturing facility has an annual production capacity of nine million litres and is sold to customers in two sectors. One is the drinkable sector for use in distilled alcoholic drinks. Second is the industrial sector, where raw materials of alcohol-based products are used in sanisiting and disinfecting, and cosmetics.

In a May 4 report, the research firm said Hexza expects demand and pricing for ethanol to remain strong beyond the MCO, as sanitising activities become the norm in Malaysia.

Similarly, Samchem and Hextar shares have also piqued interest, charting a steady uptrend from about a month ago.

Samchem is involved in the distribution of chemicals that are used in personal care and grooming products such as mouthwash and toothpaste, plus household care and cleaning products like detergents, multi-purpose cleaners and stain removers.

On the industry side, it serves the automotive, manufacturing, construction, paints and inks, agriculture, and oil and gas sectors.

Hextar (formerly known as Halex Holdings Bhd), meanwhile, has two divisions. While maintaining its core business of manufacturing, re-packaging and distributing agrochemicals, it has also diversified into the manufacturing and distribution of healthcare disposable products such as wet wipes, cotton-based products, sanitary towels and tissue products.

What these companies have in common is a healthy balance sheet, which means they can gear up to raise capacity and ride out a potential slowdown some segments of their business would be facing.

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