The company, which is rebuilding its warehouse, expects to complete this by end of this year. The new warehouse can store more than 5,000 pallets and can help reduce its reliance on other warehousing operators and therefore incur lower storage costs. Megachem aims to handle 70% of its storage needs in house.
"The construction of Megachem’s new two-storey warehouse will provide a major boost to its operational efficiency and cost management," write Matthias Chan and Liu Maorong of SAC Capital, who are keeping their "hold" call.
The analysts point out that Megachem, which provides various kinds of specialty chemicals used in semiconductors, advanced electronics and data centre infastructure, is well positioned to capitalise the growth trends of these products.
The company's surface technology segment covers semiconductor fabs, electronics manufacturers and other potential beneficiaries of the booming AI and data centre sectors, contributing 27% of total revenue.
Chan and Liu see another angle for Megachem in the overall green trend.
Specifically, Singapore is positioning itself as a global leader in sustainable aviation fuel (SAF) production.
Governments globally, including Singapore’s, have set mandates that map steady increases in the percentage of SAF in planes’ fuel tanks in the coming years.
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"As global decarbonisation efforts gather pace, Megachem stands to benefit directly from rising SAF adoption, reinforcing its exposure to one of the most important sustainability megatrends," add Chan and Liu.
However, there are a few risks, such as macroeconomic & geopolitical headwinds; volatility in chemical prices and regulatory and environmental risks.
For now, to reflect cost savings from warehousing, Chan and Liu have raised their FY2026 earnings estimate by 22% to $6.2 million, to reflect warehouse cost savings.
By applying the same 30% discount to the peer mean forward PER of 21.8x, they have derived a target price of 50 cents, up from 39 cents previously.
Megachem shares last traded at 46 cents on Sept 19.
