LITTLE known SamChem Holdings Bhd has undergone difficult times over the past five years. The fall in crude oil prices made things worse for the home-grown petrochemical distributor, whose earnings had been on the decline in the last four financial years.

However, the company’s earnings have improved in the current financial year ending Dec 31, 2016 (FY2016).

In the third quarter ended Sept 30, SamChem’s net profit more than doubled to RM3.26 million from RM1.21 million in the previous corresponding period. Revenue rose 14.4% to RM171.26 million from RM149.65 million.

Consequently, its cumulative nine-month net profit jumped to RM11.48 million, up 48% from RM7.77 million in the previous corresponding period. Revenue grew 8.3% to RM483.72 million from RM446.57 million.

Having survived the rough patch, CEO Datuk Ng Lian Poh expects better days ahead despite the economic headwinds.

Ng believes that SamChem is in a position to ride the strong demand growth in Indonesia and Vietnam, where the sprouting of manufacturing plants and economic growth are driving consumption of petrochemicals.

“Sales volume is growing at 30% to 40%. And the [growth] pattern is likely to continue, if not [become] stronger,” he tells The Edge. Moreover, selling prices have stabilised.

He opines that Vietnam and Indonesia are exciting markets for the petrochemical industry. Indeed, SamChem is not just targeting the two countries, but the entire Asean region, which has a population of 450 million.

The company saw robust earnings growth in its Vietnamese and Indonesian markets in 9MFY2016. The Vietnamese market generated a pre-tax profit of RM8.83 million — a leap of nearly 78% from RM4.97 million in the previous corresponding period. In fact, Vietnam has overtaken Malaysia as the largest earnings contributor although the latter’s contribution has increased. Malaysia earned a pre-tax profit of RM8.61 million in 9MFY2016 compared with RM7.14 million a year ago. 

In the Indonesian market, pre-tax profit ballooned to RM2.83 million from RM21,000 in the previous corresponding period. Ng says SamChem has invested RM10 million in the market, where the existing capacity is able to generate revenue of up to RM350 million — more than five times the RM66.7 million earned in 9MFY2016.

Ng’s confidence in SamChem’s prospects partly stems from the high barriers to entry in the petrochemical distribution industry. SamChem has over the years continued to invest to establish a regional foothold, despite its unexciting earnings.

“In this industry, we have to have a long-term view. Our suppliers are more than 100 years old. They have been through many cycles ... if we don’t have a long-term view as they do, they might not be keen to appoint us as their regional distributor,” says Ng.

The petrochemical distribution business is not just about owning storage facilities and a fleet of chemical tank trailers. As part of the supply chain of many manufacturers, a petrochemical distributor needs to sort out all the logistics, including storage at terminal, transport, customs clearing and ensuring a consistent supply of feedstock to clients.

“In the past few years, we have invested a lot in building up the infrastructure and systems ... we are now in a position to reap the fruits of our labour.

“In this part of the world, even if one has capital of RM500 million, I doubt the sum is sufficient to set up the facilities and regional presence that we have now,” says Ng, who holds a 6.34% stake in SamChem. His elder brother Ng Thin Poh, the company’s founder and executive chairman, is the single largest shareholder with a 43.79% stake.

The petrochemical distribution industry went through a consolidation phase in the past few years, during which the weak players were pushed out. “(It was a case of) survival of the fittest ... we are still in existence today. This speaks well of us,” says Ng, noting that SamChem is among the leading specialised petrochemical distributors in Asean today.

The company deals with big names such as Petroliam Nasional Bhd, Shell, BASF and ExxonMobil.

SamChem is one of the three leading petrochemical distributors in Vietnam. In Indonesia, it commands a 20% to 30% share of the market.

Although SamChem is not on the radar of investment analysts, its rosy prospects have been priced into the share price.

The counter, which had been hovering below 65 sen between 2012 and mid-2015, has staged a strong rally. It hit a historical high of RM1.45 late last month compared with 79 sen a year ago. Year to date, it has gained nearly 44%, closing at RM1.29 last Friday.

But does the rally have legs? The company’s earnings per share for 9MFY2016 was at 8.44 sen. Based on an annualised EPS of 11.25 sen, the stock is currently trading at 11.5 times. 

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