Luxchem ... Oct09

A trading company specializing in industrial chemicals and materials. It has a large customer base of over 700 in 14 countries and supplies 400 types of chemicals and 100 grades and types of polyester resins.

It manufactured polyester resin with technology transfer from Japan.

Its trading division is still its largest, accounting for 77% of turnover and 60% of pretax profit for 2Q2009. Around 19% of its trading revenue comes from the sale of synthetic latex (nitrile) to companies like Kossan, Hartalega, Top Glove, Supermax, Riverstone and :Latexx. Another 4% is derived from the sale of latex chemicals such as coagulants and dusting powder.

Luxchem, which sources its nitrile from Zecon Chemicals of Japan, has a market share if around 20%. Around 90% of the nitrile is used in the rubber glove industry. Nitrile gloves normally command a premium over natural latex gloves as they do not contain protein and thus do not cause allergic reactions.

Others like Luxchem, LG Chemical of Korea and Nippon A&L Inc of Japan import nitrile into Malaysia.

Other products sold by Luxchem’s trading division include polyester resins produced by its manufacturing division ….
Producing and trading polyester resins account for around half of Luxchem’s profits.

It has an estimated 40% share of the polyester resin market. Polyester resin is widely used in the vessel, automotive, housing, industrial equipment and construction industries. It is also used in the fiberglass industry to mould boats, automotive parts, bathtubs and industrial equipment where strength and anti-corrosive properties are required

It is in strong financial position, with a net cash of RM59 million as at June 30, 2009. This represents a cash per share of 45.5 sen. With a cash generated business and low capital expenditure, Luxchem is able to pay good dividends.

Although its earnings growth is likely to lag behind those of rubber glove companies, as only 23% of its trading revenue is derived from supplying the rubber glove industry.