Chemical Industries (FarEast) Limited

[weijian]

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

[specuvestor]

Nice write up Weijian 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

[weijian]

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.

[specuvestor]

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.

[weijian]

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

[weijian]

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

[weijian]

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.

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.

[weijian]

Pretty sure our OPMI doesn't need to ask this question.

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

[weijian]

SIAS has asked some great questions again. Chemical Industries kitchen-sink onerous contracts and PPE impairment in FY25 fiscal year. So I wonder why didn't they recognize the onerous contracts in FY25 but did a revision for FY24?

RESPONSES TO QUESTIONS RAISED BY SHAREHOLDERS AND SIAS IN RESPECT OF THE COMPANY’S ANNUAL REPORT FOR THE FINANCIAL YEAR ENDED 31 MARCH 2025

The company made a material restatement of the FY2024 financial statements. Specific line items were amended in the statement of financial position, consolidated statement of profit or loss and other comprehensive income, statement of changes in equity and consolidated statement of cash flows, and the related notes to the financial statements.

The restatement arose because the company had failed to recognise provisions for restoration costs on leasehold land since the inception of the leases. Management has now classified this as a prior period error, requiring a retrospective restatement of comparative information in accordance with SFRS(I) 1-8 Accounting Policies, Changes in Accounting Estimates and Errors.

As a result of this error, the group’s financial position has been revised down by as much as $6.4 million. The group’s historical earnings and shareholders’ equity have all been inflated.

After missing out on an obligation as fundamental as lease restoration costs, how can shareholders be assured that the recently reported $10.1 million impairment of property, plant and equipment and the $6.2 million provision for onerous contracts are sound, accurate, and based on robust judgment?

AGM Q&A: https://links.sgx.com/FileOpen/20250723_...eID=852722

[weijian]

Well, I don't know them personally but connecting all the dots from public information, it points towards our Chairman Emeritus.

Back in Sept2021, his son had made an open claim that Chairman Emeritus had a mental capacity issue and it seemed like the former followed up with a lawsuit. The acceptance of Chairman Emeritus's health report in Court and dismissal of the suit has medically cleared him of his son's claim.

Court dismisses S’pore man’s claim that dad, 97, lacks mental capacity to marry secretary whom he had affair with

A family court has dismissed an application by a man, who alleged that his father, 97, had lost his mental capacity and was unable to make independent decisions about his life.

His second son filed an application in the family court, asking the judge to rule that his father had lost his mental capacity and was, therefore, incapable of making independent decisions about his life. The grandson also lodged a notice of objection to the marriage, but later withdrew it.

However, the judge found the claims unpersuasive and dismissed the application.

While the second son claimed that his father lost his mental capacity after the 2017 fall, he did not challenge his father’s decision to appoint him general manager of the company in 2019, she noted.

Recordings of conversations between the man and his grandson also showed that he was aware of his actions, the judge said.

Doctors who assessed the man concluded that while he had mild cognitive impairment, including short-term memory loss, he was still capable of understanding information, weighing options and making decisions on matters, such as marriage, asset transfers and revisions to his will.

The judge accepted these findings and ruled that the man retained his mental capacity to make decisions.

https://mothership.sg/2026/01/man-mental...n-lawsuit/