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Discovering Value In Singapore’s Chemical Companies

testtubeWhen we talk about chemicals, we are referring to key basic materials. Common chemicals can be anything from fertilisers and pesticides to petrochemicals and plastics or even rubber and resin.

Singapore lists many companies with varying proportions of revenue originating from chemicals. Of the ten largest chemical companies reporting at least 50% of their revenue from Chemicals, Zagro Asia Limited (SGX: Z01) a producer of pesticides and fertilisers reports the smallest percentage of revenue from chemicals at just 56%.

Dynamic Colours Limited (SGX: D6U) says four-fifths of its revenue comes from chemical related activity. The company manufactures and sells compounded resins primarily in China, Singapore, Vietnam and Malaysia.

If you are wondering what compounded resins are, they are polymers or plastics that have been mixed with additives to achieve certain physical properties such as flame retardance or increased strength. Dynamic Colours is also involved in colour compounding. This is simply the addition of colour to the same polymers to make them more aesthetically pleasing for use in electronic devices.

With such plastics seemingly all around us in everyday life you would expect demand for Dynamic Colours services to be high. Whilst the company trades with a slightly above-average earnings multiple of 15.6 and a price to book ratio of 1.1, it also has an appealing dividend yield of over 9%. Thus if Dynamic Colours was to slip from near its 52-week high, it could just tick all the boxes required by a value investor.

China Sunsine Chemical Holdings Ltd (SGX: CH8) manufactures and sells rubber chemical products in China. Distributing mainly to tyre manufacturers, the company derives all of its revenue from its chemical activities.

Whilst the yield of 3.2% is significantly lower than that of Dynamic Colours, it is still better than the market average. China Sunsine also has the added benefit of trading at around 8 times earnings, less than two-thirds the market average, whilst also being priced at a 10% discount to its book value.

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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 Adam Kuo doesn’t own shares in any companies mentioned.