Samchem to see earnings growth of 11 per cent in FY17F
KUCHING: Samchem Holdings Bhd (Samchem) is expected to see earnings growth of 11 per cent in financial year 2017 forecast ( FY17F).
According to the research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research), Samchem is reaping fruits from the group’s regional expansion in Southeast Asia.
“Samchem set up its offices in Vietnam in 2006 and Indonesia in 2009. This is followed by Singapore in 2010 and Cambodia in 2014.
“Over the years, contribution from overseas sales has improved substantially from under 30 per cent in FY12 to close to 50 per cent now,” the research arm said in a small cap highlight.
This helped Samchem to mitigate single- market risk. MIDF Research noted that the business of chemical distribution is in the scale and Samchem is able to increase the group’s sales volume through acquiring market share and replicating its business model in the regional markets.
“It has 10 warehouses and eight offices in strategic locations to help it reach its clients efficiently,”the research arm said.
MIDF Research also noted that over the years, Samchem has invested in the group’s distribution infrastructure.
The research arm opined that most of Samchem’s fixed costs have stabilised and the additional sales will be translated into improved margins.
MIDF Research said that the first nine months of FY16 ( 9MFY16) profit before tax ( PBT) margin was 4.05 per cent compared with 1.86 per cent in FY15.
“Assuming that the PBT margin stays in this range, Samchem should see improved earnings,” it added.
Moving forward, MIDF Research expected earnings growth of 11 per cent in FY17F.
“Hi g her demand from developing market s like Indonesia, Cambodia and Vietnam provides growth visibility for Samchem. The company is also entering Myanmar but we think contribution from the new market will only come in later.
“Meanwhile, firmer crude oil prices will support the average selling prices for petrochemicals,” it said.
The research arm added that one of the major chemicals Samchem distributes is polyurethane, which is a derivative of hydrocarbon. Overall, MIDF Research ascribed a fair value of RM1.55 per share on Samchem based on 12-fold price earnings ratio of FY17F.