ARANK (7214) - A-rank Berhad: Growing Strong
A-rank Berhad (Arank - 7214), one of the major manufacturer in the South East Asia for aluminium billets could be looking to see better prospect in the coming years despite on the challenging business environment on the current economy.
With crude oil price continue to be depressed, high volatile commodity prices that is easily shaken by business demand and over supply, it had been difficult for businesses to make a accurate forecast in order to tune to the best efficiency for the operation. This however might not be the same for Arank, which had recently saw the emergence of Dato Leow Chong Howa, the owner for LB Aluminium Berhad (Lbalum - 9326) as one of the majority shareholder with 27.78% controlling stake earlier this year.
Running with better synergy
Lbalum manufacture aluminium extrusion that is used for construction, furniture, auto industry as well as other aluminium products such as aluminium sheets. It's main ingredient is none other than aluminium billets, which is the main product of Arank. Now that Lbalum had finally fully completed the commissioning of two additional extrusion line, this had increase the overall capacity and further strengthen its position as the market leader domestically through diverse product offering, catering for various design, complexities and dimension. Now, Lbalum is able to see output of 4,300 metric tonne per annum, which is the largest press in Malaysia.
As for Arank, the increase capabilities will also directly address to a increase demand in the supply of aluminium billet, which will drive it's revenue and profitability inevitably. The top down strategic alliance in Lbalum and Arank will be very beneficial for both side of the company and investor.
Aluminium had gain favor recently due to its strength albeit being lighter than other metal. This had directly pushed up demand for the application of aluminium in industry such as auto industry as well as building material construction.
The advancement of battery technology point towards Aluminium
Lithium-ion battery first commercialized in 1991 by Sony and Asahi Kasei. The battery continue to see advancement in technology and subsequently become accounted for more than 66% of rechargeable battery in 2011. However, albeit all the research being pour into the development of Lithium-ion battery, it is an unavoidable fact that the Lithium-ion battery are possible of explosion from design flaw and electrical short, where battery temperature can shoot up rapidly to 500 Celsius, causing the cell to explode with venting flames, which industry termed it as "rapid disassembly".
With more and more mobile electrical goods being developed and used by consumer, it is important that the product are safe to be used by consumer. However, the recent event of new flagship smart phone Samsung Note 7 that had launched recently being issued with a global recall due to battery failure that is prone to explosion. The explosion is caused by "rapid charge" feature that enable huge current to charge the battery This unfortunate event that plagued Samsung is foresee to cost the company more than US 1 billion.
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| Vehicle on fire from battery explosion originate from a smart phone device |
As there are yet to see any commercialization on Aluminium based battery, analyst expect to see potential first commercialization on Aluminium battery probably at 2019.
Better Margin
Albeit the falling Aluminium prices in the global market, Aluminium player are enjoying a better profit margin due to an even lower input raw material cost. Technical chart had shown that Arank is trending on a gradual uptrend basis that is supported by improving fundamental from improving earning per share, contributed from better profit margin. We view that the 2 completed production line in LB Aluminium will see increase the order of Aluminium billet from Arank.
According to the 3rd Quarter financial result, Arank had a cumulative 8.73 EPS, back with RM 370 million in revenue.
With the coming 4th Quarter financial result to be announced later in this month of September, Arank is most likely able to deliver the FYE 2016 with estimated EPS of 11 cents. This will reflect in Arank on potentially valuing at RM 1.10 trading at PER x10.
Arank is not enjoying the Aluminium boom alone, as industry player are reflecting with stronger share prices. Among them are Lbalum, PMetal and Pmbtech.
Conclusion
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| Car body frame made from Aluminium |
Technical signal are signalling prices to trade along long term uptrend range, supported with growing EPS due to better profit margin. Usage of Aluminium in the auto industry and potentially in the rechargeable battery market will continue to mark better prospect for this metal.
Bone TP : RM 1.00
ARANK (7214) - A-rank Berhad: Growing Strong
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