Chemical Industries (FarEast) Limited

Thread Rating:
  • 0 Vote(s) - 0 Average
  • 1
  • 2
  • 3
  • 4
  • 5
#1
This is an interesting company with 60years of operating history. Emeritus Chairman Lim (48% ownership) is 95years old and back in the AGM in July2021, he had openly deemed that none of his family members were ready to succeed him.

This was followed by his son (executive director) and grandson (Plant manager) openly revolting against him through a police report and whistle blowing on some "inappropriate prepayments".

Business
Chemical Industries is in the business of production, sales and distribution of chlorine/ akali chemicals (sodium hydroxide, chlorine, hydrochloric acid). Revenue has gone nowhere for a decade - While it is the sole local mfg of such chemicals, foreign imports have proven to be tough competition and their products have probably no differentiation and pricing power. This portion of the business has incurred a net loss in the last FY due to higher electricity costs, and is expected to continue to do the same in the current FY with the locked in 2 year electricity contract it signed with the genco.

Besides costs, Lady Luck has not been shining on Chemical Industries as it started Myanmar operations in early 2020, only to be hit by the military coup 1 year later. It had invested ~11mil in the PPE. While it is still operating now and cash flow positive, Mgt has taken the approach to write down the PPE fully. 

Asset
The best part of this company is probably its 2 shophouses opposite Clarke Quay (17 Upper Circular Rd and 19 Carpenter Street). Quick check on URA website suggests transaction activity over there are generally limited, with only 1 transaction (6mil) done in Dec2019 (13 Upper Circular Rd). The same property has undergone some AEI and is currently peddling for 24.2mil.

https://www.edgeprop.sg/property-news/sh...le-242-mil

The ground floor of its 17 Upper Circular Rd shophouse is rented out to a sauna operation. And quick check on google reviews show up stuff like "A mixed crowd where you're likely to find your match. Plenty of action, especially when you're open-minded" and "If you got it flaunt it and you will get it."...Pretty unique clientele I suppose.

Structure

This is not a liquid stock. Almost 75% of its ~50mil market cap is held by insiders/institutions. Taking inspiration from Buffett, Founder Lim only stepped down as MD in 2021, at a good old age of 93years old then. After 3 sons, 1 nephew and 1 grandson who came and left, only a 4th son is left in a NED role since 2019.

BOD largely renewed itself (or got purged?) in the last 2 years. The C-suite has been renewed too --> CEO and COO - Sept2022, CFO-Oct2020, Plant Director-Aug2021, Sales Director-Dec2022. Things looked to be getting better until the COO tendered his resignation just after 1 year.

Mr Loi has tendered his resignation as Chief Operating Officer with notice, to pursue his self-interest and personal goals. His cessation as COO will take effect from 11 April 2024.
https://links.sgx.com/1.0.0/corporate-an...34e07f7871
Reply
#2
Nice write up Weijian Smile Looks like the major risk is actually the structure ie shareholding / management after the old man move on. If it is passed to a passive trust or charity, since it seems his family relationship is suboptimal, the business and management might likely be stagnant when there's no skin in the game.

Optimal case is of course a sale
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
Reply
#3
hi specuvestor,

The business already looks stagnant before the old man passes on. So the question is, would there be some unlocking of value when he does? That said, the valuable assets are highly illiquid and so unlocking of value probably takes time.

The "Independent" Chairman and the newly hired CEO has no skin in the game as you pointed out. If it is some sort of charity trust, wouldn't it be a relatively good outcome for OPMIs? After all, charities need money, giving certain assurance of capital reductions/dividends.

Another typical business worth more dead than alive. Unless one is the wealth manager for the Family trust or knows some of the family members, it is better to stay on the sidelines.
Reply
#4
Yes this is more like a cigar butt investing that you hope it’s not dirtied too much by the previous owner for your last puff 😂

Having charity run your business is akin to accountants taking over. They are not businessman. Maybe not bad outcome if dead is better than alive 😅 That’s the stark distinction of why Chapter 11 works better than our JM system.
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
Reply
#5
(25-10-2023, 03:31 PM)weijian Wrote: Mr Loi has tendered his resignation as Chief Operating Officer with notice, to pursue his self-interest and personal goals. His cessation as COO will take effect from 11 April 2024.
https://links.sgx.com/1.0.0/corporate-an...34e07f7871

His colleague has joined him as well. So it all comes back to square one.

Mr Yeo has tendered his resignation as Chief Executive Officer with notice, to pursue his self-interest and personal goals. His cessation as CEO will take effect from 31 March 2024.

https://links.sgx.com/1.0.0/corporate-an...95d79679d0
Reply
#6
(31-10-2023, 08:27 AM)weijian Wrote:
(25-10-2023, 03:31 PM)weijian Wrote: BOD largely renewed itself (or got purged?) in the last 2 years. The C-suite has been renewed too --> CEO and COO - Sept2022, CFO-Oct2020, Plant Director-Aug2021, Sales Director-Dec2022. Things looked to be getting better until the COO tendered his resignation just after 1 year.

Mr Loi has tendered his resignation as Chief Operating Officer with notice, to pursue his self-interest and personal goals. His cessation as COO will take effect from 11 April 2024.

https://links.sgx.com/1.0.0/corporate-an...34e07f7871

His colleague has joined him as well. So it all comes back to square one.

Mr Yeo has tendered his resignation as Chief Executive Officer with notice, to pursue his self-interest and personal goals. His cessation as CEO will take effect from 31 March 2024.

https://links.sgx.com/1.0.0/corporate-an...95d79679d0

The sales director was appointed after the CEO/COO's own appointment, so probably the CEO/COO's own hire. With their resignations, the sales director "has to go" too. The C-suite renewal is back to square one I suppose.

Cessation of Mr Yap Yoke Woo as Sales & Marketing Director of the Company.

https://links.sgx.com/1.0.0/corporate-an...01d98d75d1
Reply
#7
I am not exactly sure what the independent Chairman means when he use the words "second and third-tier leaders"? I hope this tier is based on hierarchy rather than capability. Smile

With the double whammy of rising costs and decreasing revenue (losing competitiveness), the company can only roughly break even its OCF. And this is after spending big CAPEX to reduce its cost base by investing in more energy efficient/ carbon compliant production facilities.

CHAIRMAN’S MESSAGE

Paths to success are often strewn with obstacles, and our journey in transitioning to professional management was no exception. We faced unexpected setbacks with the departures of both our C-Suite executives after one and a half years.

Whilst this caused a temporary disruption in our process of building a high-performing management team, business continuity was minimally impacted. Our committed and competent second and third-tier leaders quickly took over the reins, reinstating stability within the organization.

............

Over the course of the past year, we have engaged with real estate professionals to improve rental yields, as well as to increase capital values. In all our deliberations, we are taking a long-term view as short term measures may not withstand the vagaries of the property cycle.

CHEMICAL INDUSTRIES (FAR EAST) AR24:
https://links.sgx.com/FileOpen/20240628_...eID=809565

P.S. 17 Circular Road's ground floor is still serving a very niche clientele.
Reply
#8
Pretty sure our OPMI doesn't need to ask this question. Big Grin

So what's next? Pressuring his 95year old (honorary) chairman to do something, like optimizing tenant mix OR requesting the post to be removed?

RESPONSES TO QUESTIONS RAISED BY SHAREHOLDERS IN RESPECT OF THE COMPANY’S ANNUAL REPORT FOR THE FINANCIAL YEAR ENDED 31 MARCH 2024

Q6. A statement "17 Circular Road's ground floor is still serving a very niche clientele" has appeared in Chemical Industries (Far East) Limited (valuebuddies.com). Who is this "niche client"?

The Company’s response
As the statement originates from an external source, we are unable to provide commentary on interpretations or references made by others.

https://links.sgx.com/FileOpen/20240724_...eID=812662
Reply


Forum Jump:


Users browsing this thread: 1 Guest(s)