RHB Group Research’s Jarick Seet has called Multi-Chem Limited "a little known cash tech gem" in Singapore’s technology space.
In an unrated note on Dec 1, he highlighted as at 1H2020, Multi-Chem’s net cash stood at $71.1 million, or 62% of its current market cap. Management owns about 80% of the company and has shown a great track record in rewarding shareholders with dividends.
Furthermore, the company enjoyed stable earnings from FY2015-2019, and “is likely poised for further strong growth in FY20F.” 1H20 profit after tax and minority interests (PATMI) surged 84% to $7.3 million, and if prorated, represents only 7.8x FY2020F price to earnings (P/E) and a lower 3.9x ex-cash P/E.
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The company is also riding on higher demand of IT related products, with IT distribution business grew 13.9% y-o-y to $225m in 1H2020, mainly due to an increase in demand arising from the push in and increased reliance on digital technologies during the Covid-19 pandemic.
As such, he believes that this trend is set to continue with the further advancement into 5G, rise in e-commerce and increased reliance on technology for more companies even as the pandemic subsides.
Seet said Multi-Chem also provides IT security solutions and training which should further be in demand with the increasing need for data protection. As at 1H2020, this segment made up about 99.5% of total group revenue for 1H2020.
In addition, with a strong balance sheet making up $71.1 million of net cash, management has been rewarding shareholders with stable and sustainable dividends over the past years. It has even shown to be willing to pay more dividends if profitability increased with the payout ratio ranging from 40% to 75%.
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With profitability expected to increase along and a brighter outlook, we are positive on it maintaining the dividend ratio range, with the possibility of an increase going forward especially in FY20F where it will likely continue its strong performance into 2H20F.
Seet also commented on the stock’s price, saying Multi-Chem has always traded about 10x P/E, compared to its peers which are trading at 10-12x P/E. In addition, he said the fundamentals of the company have been improving over the years as it toned down its printed circuit board (PCB) business, while growing its IT distribution business.
He thinks that the re-rating of this stock will likely come when it announces its full-year results, which should justify its strong growth trend and outlook.
As at 4.21 pm on November 30, shares of Multi-Chem traded at $1.27, with no trades having been made today.
