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Saturday, 3 November 2007

Multi-Chem 3Q results on 30th October 2007 - Mixed results

Heartening results
Overall profit finally improved 37% quarter on quarter even though overall profit for first 9 months still lagged last year by 19%, due to poor Q1 and Q2 results.

Drilling Business
The better results was contributed mainly by its stunning growth in drilling services in PRC while Singapore posted only marginal growth.

3Q 2006 - 3Q 2007
12.6m - 16.9m --- 34.2%

2Q 2007 - 3Q 2007
11.4m - 16.9m --- 48.5%

IT distribution
After several quarters of record growth in revenue, 3Q 2007 shows signs of slowing down.

3Q 2006 - 3Q 2007
11.9m - 20.5m --- 72.2%

2Q 2007 - 3Q 2007
21.8m - 20.5m --- (5.8%)

Referring to my earlier post on 2Q 2007 results, the unexpected slow down in IT segment might derail the target of 42.9m revenue required to match the earnings contributed from the drilling segment within 2 quarters, i.e. 1Q 2008. Bearing further slow down in this segment, I'm cautiously optimistic that revenue could only hit 42.9m by end of 2008.

Multi-chem's has tremendous resources tied up in the capital intensive drilling business segments. Its high operating leverage nature works to its favour when all the machines are ultilised, resulting in better profit margin from increasing economy of scale.

However, due to cyclical nature of drilling business, it is inevitable to encounter down cycles. When that happens, machine utilisation rate may fall so low that this segment starts to incur losses due to the high fix cost.

Thus I can only hope its IT segment can grow quickly to match the earnings from the drilling segment in order to stablise future earnings.

Going forward
Bearing unforeseen slow down in both major business segments, drilling and IT distribution, I am hopeful that 2008 will be a good year for multi-chem.

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