99 - Luxchem continues to grow

99 - Luxchem continues

to grow

Demand for glove will always be there as long as world population continue to grow. Because glove is one area the medical industry will continue to need to use.

The products are often either necessary or mandatory and therefore the industry is inherently resilient. That means demand will stay firm no matter how severely people slash their spending. It is widely believed that the demand for glove is growing at 10% per annum.

I realised the extend of such demand for usage for glove when during my last few visits to several different private hospitals and on the movable side table was a box of gloves - ever ready to be used especially by the attending nurses or doctors. And each time after a usage, the glove is disposed and a new one is required for the next usage.

No wonder the big four King glove manufacturers of Malaysia, Kossan Rubber Industries Bhd, Supermax Corp Bhd, Top Glove Corp Bhd and Hartalega Holdings Bhd continue to expand their capacities over the years.

Business is so good for them that if one is a very early bird investors of these four companies, one would have reaped massive returns on their investments to date.

As latex is required in the process of manufacturing the glove, one small low profile company that has been quietly supplying the big glove industry is chemical supplier, Luxchem Corporation Berhad.

Luxchem being an industrial chemical supplier focuses on several industries' needs - rubber, latex (glove), fiberglass reinforced plastic, coating, ceramic and polyvinyl chloride.

Luxchem's businesses are divided into two segments i.e. Trading (79.6%) and Manufacturing (20.45). Revenue from the Malaysian market is 70% with the balance from export market.

Realising that the Malaysia market is perhaps at a saturating point, it ventured into Indonesia in 2011 and further into Vietnam in 2015. I think the management of Luxchem must have seen that Indonesia and Vietnam, both with a population of 263 million and 95 million respectively (compared to 30 million for Malaysia) presented a very big growing market to tap.

Its overseas ventured seemed to have paid off so far. Its Indonesian market contributed 15% of trading segment revenue for Financial Year ending 2016 while its manufacturing segment did even better. Export sales contributed 84% from countries such as Vietnam, Thailand, Bangladesh, Australia and Singapore.

The, the acquisition of Transform Master Sdn Bhd in 2016 helped to kick start an impressive 1st Quarter 2017 results with revenue increasing by 36% to RM 218 million and net profits jumped to RM13.6 million which is an remarkable 94% increase!

Luxchem will continue to focus on high-growth export markets such as Indonesia and Vietnam which collectively account for 23.9% of its revenue base (FY2016). And its revenue continues to grow impressively.

Consistently rewarding shareholders

with good dividends

Luxchem is also another stock that consistently rewards its shareholders with dividends that can match the fixed deposits by the banks. Since its listing debut on the Main Board of Bursa Malaysia in June 2008, it has paid out dividends every year without fail, thanks to its consistent earnings too.

Early bird investors who had subscribed to its IPO at RM1.10 and dared to hold on until today would have seen their investments ballooned to nearly 300% based on the current price of RM2 plus level, and this does not take into consideration the total dividends of RM785 (from Year 2008 to 2016).

There wasn't much coverage on Luxchem initially after its listing in 2008.

There were the occasional reports or blogs written about Luxchem. But what caught my attention to invest in Luxchem shares is its steady results and its slow but gradual rise in dividends payout ratio.

And I am the type of investors who likes to invest in this type of simple to understand yet very focussed minded business company yet boring but a very steady paying dividends stock.

After some deeply reviews of pros and cons, yours truly decided to invest in Luxchem shares at RM1.18 on May 11, 2012 and again at RM1.19 on May 29, 2012. Since then, it has turned out to be one of my best performing stocks I have ever invested. I am glad I have been daring enough to hold on until today because there were many instances I was very tempted to sell off for profits, but the main reasons were it has been steadying paying good dividends twice a year consistently.

Why sell off a growing golden goose when it gives you golden eggs twice a year, year after year?