Luxchem has ‘shrugged off’ pandemic
KUCHING: Luxchem Corporation Bhd (Luxchem) will likely benefit from demand for chemical products recovering as economies reopen, AmInvestment Bank Bhd (AmInvestment Bank) opines, while demand for personal protective equipment (PPE) is set to drive the group’s latex and nitrile processing or compounding businesses .
“We believe Luxchem has shrugged off the pandemic,” AmInvestment Bank said.
“The demand for chemical products has recovered as economies reopen, and increasingly the thinking has been that protecting livelihood is as important as protecting lives.
“Meanwhile, the demand for personal protective equipment such as gloves will continue to drive Luxchem’s latex and nitrile processing or compounding businesses.”
The research firm recapped that the segment contributes about 35 per cent of its turnover in financial year 2019 (FY19).”
To note, Luxchem’s first nine months of FY20 (9MFY20) results came in above AmInvestment Bank’s, accounting for 80 per cent and 79 per cent of the research firm’s full-year forecasts and full-year consensus estimates respectively.
AmInvestment Bank believed the variance against its forecast came largely from much stronger margins underpinned by a strong recovery in prices of chemical products carried by its trading segment and better economies of scale at the manufacturing segment, at both latex compounding and production of unsaturated polyester resin (UPR) on increased volumes.
“The group’s 9MFY20 turnover shrank 13 per cent year on year (y-o-y) due to lower sales for most of its chemical products (except latex) during the movement control order (MCO) period.”
Luxchem’s core net profit improved by eight per cent y-o-y, the research firm believed, as the group benefited from inventories acquired at low prices prior to the strong recovery in prices of chemical products in the third quarter (3Q).
“Meanwhile, the manufacturing segment also recorded improved margins, we believe, mainly due to better economies of scales on higher production as mentioned.”