May 22

2024 AGM Review: Multi Chem Share Price ready to shoot?

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Walking into the industrial building in Boon Lay, I was at a loss. Was this the place where they sold high-tech cybersecurity software? It looked like it was ripe for small medium enterprises (SMEs), but cybersecurity software?

It didn’t seem so.

When I stepped into the room, we were held in a meeting room before we eventually went in.

The place seemed unassuming. Plain. Simple.

But for a company that had grown so fast over the past few years, and was now declaring a record dividend of 15 cents per share (or a yield of around 10%), I wondered if I was missing something.

Too much attention on the qualified opinion?

We got straight in. Right from the start, there were fiery questions and exchanges about the qualified opinion.

During the financial year, a subsidiary of the Company, M.Tech Products Pte Ltd, made payments totalling S$2,137,000 via two employees of the subsidiary, who purportedly paid this amount to an employee of a vendor for marketing and promotional expenses on behalf of the subsidiary.

We were unable to obtain sufficient appropriate audit evidence to support the payments for its intended purpose. Consequently, we were unable to determine whether any adjustments to Group’s financial statements were necessary.

2023 Annual Report, p103

The management declined to comment on the matter, noting that it was currently being worked through the lawyers they had engaged.

It wouldn’t be appropriate for them to comment.

My thoughts on the qualified opinion

I do think that whilst the qualified opinion is important to note, I don’t think it’s the most important thing.

Personally, I thought that it was a distraction from the two main matters:

  1. Why had they grown so big, so fast,
  2. And where was the next leg of growth for them?

The focus on distribution

Multi-Chem is in a unique business of distributing and selling cybersecurity software. They do not develop their own software, but they are the sole or one of a few distributors of these cybersecurity softwares within the region.

The brands they distribute are best in class
The brands they distribute are best in class

Of course, you might ask,

Why wouldn’t the cybersecurity software just sell directly to these businesses?

Because these cybersecurity software companies don’t have the inroads to these businesses, or governments. If you look at how these cybersecurity software is procured, it’s normally through an open, public tender, where others bid for it.

It would be possible, but not a good use of time for these cybersecurity software to be bidding for these projects on their own.

They have thus (rightly or wrongly), depended on distributors to sell more of their product.

It may sound dumb, but it’s what many industries do – from watches, to computers, to even consumer facing software like Microsoft Office.

When I asked the CEO, Mr Foo Suan Sai about what stopped other businesses from getting their share of the business, he explained how they were focused on being a good brand partner for the Original Equipment Manufacturers (OEMs).

What differentiates them?

Firstly, Mr Foo shared about how they were focused on the right customers.

Whilst they didn’t reveal their customers, it does seem like a large part of them are governments. Smaller SMEs often buy smaller consumer type cybersecurity software, rather than the ones used by big, large multi-national corporations.

For example, if you’ve worked with the Singapore government, you would have noticed that they use the thumb drives below.

You’re looking at a single government procuring across their different ministries.

There are about 150,000 public service officers working in 15 ministries and over 50 statutory boards.

I did a quick Google search on how much each token was.

You can see below that for 250, it costs $31,686.

Imagine that amount of sales that’s flowing through Multi-Chem.

But the second aspect is its ‘ruthless’ (Mr Foo’s words, which Ms Han tempered down to ‘relentless’) focus on getting more customers. There are only a few distributors in the market, and seeking to win over more customers is a clear focus area for the sales team.

Wouldn’t you trust this genial, management team? Ms Han, on the far left, is the COO.
Wouldn’t you trust this genial, management team? Ms Han, on the far left, is the COO.

What I found helpful was the added integrity of the management team. When I asked Ms Han whether they were actively engaging analysts to increase coverage of the stock, she said that they had tried it in the past.

But it didn’t seem a very good use of their time.

So they decided to stop.

They were focused on doing ‘hard, and honest work, with humility’.

Sure, you might be skeptical and think that it’s just management speak and corporate BS. But they have clearly delivered on the results.

Just look at how fast their turnover has risen since the landmark 2020 year
Just look at how fast their turnover has risen since the landmark 2020 year

What’s next?

When I asked Mr Foo what was next for the company, and which geography was exhibiting the most potential, he said Vietnam was showing the most potential.

If you look at their revenues below, you would see they have grown ‘Others’ by a low.

And this is where Vietnam might offer the next boost to their growth.

Boring businesses, are often the best businesses

When you look at a company like that, sometimes you might think that there’s nothing much to find a business like that.

After all, it seems like they are just a local SME (albeit listed), with a presence in 27 different cities in 14 countries. Most would already call them a MNC, but for us in Singapore, we have high standards for what qualifies as a ‘good investment’. We want the fancy next big idea.

But maybe, sometimes there aren’t that many big ideas. And the one which has sustained Multi-Chem has been on a focus on better relationships.

Not just with vendors, which improves their ability to provide the best to customers, but to clients, and their staff.

Here’s a beautiful story I heard during the AGM to close this article.

When Ms Han was asked when the PCB business would close down, she said that they were keeping it open for their many long-term staff.

They were now close to retirement age, and it seemed like a natural time to finally wind down the business.

That touched me.

Sure, it didn’t make money.

But they were keen to keep their staff, because business isn’t just about money.

It’s about the people too.

 


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