Investment Analysis: Chemical Industries (Far East) Limited – Net Profit Decline of 63.4%

Business Description

Chemical Industries (Far East) Limited is primarily engaged in the investment holding and the manufacture and sale of chemicals. The company operates through two main business segments:

• Industrial Chemicals: Involved in the manufacturing and sales of chemicals.
• Properties: Manages and rents commercial properties.

The company is incorporated and domiciled in Singapore, with its shares publicly traded on the Mainboard of the Singapore Exchange.

Industry Position and Market Share

The company faces intense competition in the industrial chemicals sector, which has led to pricing erosion and margin reduction. The electronics sector shows signs of recovery, but general industrial demand remains weak.

Revenue Streams and Customer Base

The company’s revenue is primarily generated from the sales of industrial chemicals and the rental income from its properties. The geographic footprint includes Singapore and Myanmar, with the majority of revenue generated in Singapore.

Financial Statement Analysis

Income Statement

For the six months ended 30 September 2024, the company reported:

• Revenue: \$32.9 million, a decrease of 14.3% from \$38.4 million in the same period last year.
• Gross Profit: \$4.7 million, an increase of 26.9% from \$3.7 million last year.
• Net Loss: \$555,000, a significant improvement from a net loss of \$1.5 million last year.
• Basic and Diluted Loss Per Share: 0.7 cents, compared to 2.0 cents last year.

Balance Sheet

As of 30 September 2024, the company reported:

• Total Assets: \$149.7 million, a slight increase from \$147.2 million as of 31 March 2024.
• Total Liabilities: \$15.99 million, up from \$11.62 million as of 31 March 2024.
• Total Equity: \$133.7 million, down from \$135.6 million as of 31 March 2024.

Cash Flow Statement

For the six months ended 30 September 2024, the company reported:

• Net Cash Generated from Operating Activities: \$3.6 million.
• Net Cash Used in Investing Activities: \$7.4 million.
• Net Cash Used in Financing Activities: \$0.6 million.
• Cash and Cash Equivalents at End of Period: \$16.9 million.

Dividends

A tax-exempt one-tier final dividend of 1.5 cents per ordinary share was paid during the period, totaling \$1.139 million.

Key Findings

Strengths

• Improvement in gross profit margin from 10% to 14% due to energy efficiency initiatives.
• Reduction in net loss, showing an improvement in financial performance.
• Continuous investment in property, plant, and equipment to enhance production efficiency.

Risks

• Decrease in revenue due to weak global industrial demand and intense competition.
• Increase in liabilities, which could impact financial stability.
• High exposure to energy costs and geopolitical tensions affecting operations.

Special Activities

The company is focusing on digitization efforts, safety enhancement, and process improvements to increase efficiency and reduce energy consumption. They are also exploring several green initiatives as part of their sustainability agenda.

Recommendations

For Current Investors

If you are currently holding this stock, it is advisable to hold your position. The company is making efforts to improve efficiency and reduce losses, which could lead to better performance in the future.

For Potential Investors

If you are not currently holding this stock, it is advisable to wait and monitor the company’s performance over the next few quarters before making an investment decision. The company is facing significant challenges, and it would be prudent to see if their strategies yield positive results.

Disclaimer

This analysis is based on the financial report provided and reflects my personal views as a financial analyst. It is important to conduct your own research and consider your financial situation and investment goals before making any investment decisions.

Date of Report: 13th November 2024