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Chemical Industries (Far East) Limited Boosts Annual Profits Despite Revenue Drop

Chemical Industries (SGX: C05) is a share with a tiny market capitalisation of only S$35 million and it does not seem to have gathered too much interest amongst the investing public. That could be due to its market capitalisation or its main business involving industrial chemicals which most investors will not be familiar with.

That said, the company does have some very significant shareholders in its mix. Through the insurer Great Eastern Holdings’ (SGX: G07) subsidiary, Great Eastern Life Assurance Co., the bank Oversea-Chinese Banking Corporation (SGX: O39) actually has a 17.75% interest in Chemical Industries (OCBC is a majority owner of Great Eastern Holdings). The Malaysia-listed Batu Kawan Berhad also has a 6.55% stake in the chemicals maker; Batu Kawan is the holding company of one of Malaysia’s richest brothers, Tan Sri Dato’ Seri Lee Oi Hian and Dato’ Lee Hau Hian.

Why are mega corporations interested in a S$35million chemical company? Can it be a hidden gem? The company announced its full year results on Thursday so let’s see how it fared.

Operating results

Chemical Industries has two business segments: Industrial Chemicals and Properties. The former accounts for most of the company’s revenue and profits as the latter houses only two investment properties and contributes only slightly more than S$1 million in revenue.

All told, the company’s total revenue dropped 10.4% year-on-year to S$100 million. Fortunately, because of a much better gross margin, the company’s gross profit improved by 67.7% to S$15.6 million. With similar operating costs as compared to the previous year, the company achieved a pre-tax profit of S$11 million, a 785% jump from a year ago. However, if we remove fair value gains from its investment properties from both years, Chemical Industries has managed to reverse an operating loss into an operating profit of S$5 million.

The company’s balance sheet remains in a relatively strong condition; its net debt to equity ratio is only around 17%. Chemical Industries ended its financial  year with a net asset value per share of S$1.19.

Outlook

One of the company’s major customers has been experiencing much lower demand for its products, thus affecting Chemical Industries as well. However, Chemical Industries’ management is still relatively positive on its own growth prospects. Management had proposed a dividend of 1.5 Singapore cents per share for the financial year, which is 50% higher than a year ago. The company ended Friday’s trading session at S$0.46 per share, which translates into at a trailing Price to Earnings ratio of 3.4 and a book value of only 0.39.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.