The fundamentals of the company had been in solid form, with a lot of cash in their accounts. They had been consistently for net cash company for the past 5 years. Their latest net cash per share is 0.3102. The 5 years average net profit margin also doing quite well, at 6.82%. As there are not much competitors in the industry, they might benefit from market capitalization. Taking a look at their Annual Report 2015, Datuk Dr Foon Weng Sum, the Chairman and Group Chief Executive analysed each sector in details. He did mention that the there is a substantial over-capacity in the production of formaldehyde resins in Semenanjung Malaysia, therefore their subsidiary Norsechem Resins recorded lower revenue by 28.8%. Bio-Acetic Products Sdn. Bhd. also recorded a drop of 53% in their net profit, meanwhile Hexzachem Sarawak Sdn Bhd and Chemical Industries (Malaya) Sdn Bhd both recorded higher revenue and net profit. The net profit had improved by 73.66% comparing 2015 and 2014. Mr Chairman did mention that the weakening of the Ringgit against USD poses a serious challenges to Malaysian Manufacturers, as most of major local manufacturers are imported.

So, I can say that they are facing 2 major problems. One is due to weakening Ringgit that might impact their earnings in years to come and another one is due to the competitiveness of formaldehyde resins industry in Semanjung Malaysia. However, somehow, they had already have a way to curb those situations. On 30th January 2015, HEXZA entered a Sales & Purchase (S&P) and Leaseback Agreement of equipment (8MW Heavy Fuel Oil Power Generation System) of US6.0 million in Kawthaung, Myanmar with Tembusu Industries Pte Ltd. (Tembusu)[3]. In short, HEXZA purchased an equipment and lease to Tembusu. The lease period commenced on 1 July 2015 and the monthly rental is US130,205 payable on a quarterly basis for 10 years.

By performing a rough calculation, HEXZA will be collecting US1,562,460 per year, the year for the breakeven will be only 4 years. Since the contract is signed on January 2015, the USD/RM was roughly around 3.576; now (as of November) it had become 4.350[4], increased 21.64%. I believe HEXZA had some foreign gains of 21.64% every year. The highlight is that the rental profit of US390,615 (quarterly basis for July, August and September) will be pumped in exactly in this Quarterly Result, Q1 of 2016.

As for the second problem, the management also had a solution to it. Next, on 8 July 2015, Norsechem Resins Sdn Bhd (NRSB) had entered into a S&P Agreement with Crystal Dignity (M) Sdn Bhd, to sell off its leasehold industrial land and buildings for a fee of RM17.0 million[3]. Noting that NRSB had been incurring losses for years and their efforts to turnaround NRSB was not paying off, and also due to the formaldehyde resins industry in Semanjung Malaysia is highly competitive, the management had decided to discontinue the business operations of NRSB on 31 August 2015. Even though the business had discontinued, but there was still no official news on the disposal of NRSB to Crystal Dignity (M) Sdn Bhd. The revenue for the coming quarter might be lesser due to the discontinuation of NRSB.

All i can say is that, the management are efficiently and effectively identifying the root cause and solving the problems. With this, i give them 100% to them in problem solving. Hopefully with the massive cash they have in hand, they are not shy to give away to the shareholders as dividends.

The ex-date for 4.5 sen of dividend for HEXZA is 24 November 2015. The dividend yield will be 4.81% (assuming the bought price is 0.935). By comparing to the fixed deposit of 4.0%, this is definitely a better kind of investment compared to FD.

2) Technical Analysis:

An uptrend channel is drawn. The next resistance will be 0.94, if it breaks the resistance, then the sky is the limit. Remember to cut loss if the chart falls out from the channel. There is a big double bottom as well, once breakout from the double bottom resistance at 0.94, it is expected to reach higher beyond 1.00. Do take note of the support, I had drawn a support at 0.915. The support and resistance is only applicable before the ex date. After the dividend ex date, the support and resistance cannot be followed. Notice the recent rising volumes during these few weeks, the chart is telling that the quarterly result might be good. Maybe some insiders had known the news and they start buying already. Or another thing to note, they are aiming because of the dividend. Might be? But i am anticipating good results as told by the chart.