Multi-chem, ready to unlock its potential for shareholders?

History

I wrote about Multi-chem about 2 years ago, highlighting the 2 main businesses it is involved, PCB drilling and IT security products distribution. More know about Multi-chem as a PCB driller than its IT segment. Hence, in most reports, it is classified as"manufacturing"

PCB drilling is highly lucrative (from the profit margin point of view) but requires high capital expenditure and suffers from the cyclical nature of the electronics business. IT security distribution business is fast gaining ground but due to its low profit margin nature, it requires a huge gain in revenue before it can match the profit of the PCB drilling segment in absolute terms. Given the robost growth and current market demand for IT security products and services, there is no reason why the profit contributed by the IT segment cannot match that from the PCB drilling any time soon. The true potential of Multi-chem, lies not in its PCB drilling business, but in its IT distribution business.

Good business, low market valuation?

Since the market perception of Multi-chem is centered upon its PCB drilling business, it is no wonder

• still trading slightly below book value
• had a P/E below 5 and
• ROE above 20%.

The litmus test for being undervalue is positive. A more in depth valuation give about 52 cents in my first post on it.

Unlocking its potential for shareholders?

In an annual web based Q & A with shareholders, the management mentioned the following in response to a question on the company's roadmap for it PCB and IT segment. The company's reply is quoted below:

The Company will continue to develop both businesses but will look to spin off the IT business as a separate listing in the future to unlock the value of the business.

If the above can be implemented, the potential returns for shareholders already vested in the company should be substantial. Hopefully, my long wait on Multi-chem is worth while after all.