ARANK (7214) - Arank - Rising Alloy

A-Rank Berhad (Arank - 7214) specialized in the production and manufacturing of customized aluminum homegenized extrusion billets through wholly owned subsidiary Formosa Shyen Horng Metal Sdn Bhd. Started in 1998 with only an annual capacity of 12,000 metric tonnes, Formosa had registered consistent growth. Currently, Formasa had an installed capacity of 120,000 metric tonnes a year, 10 times more from where they had started.

Arank had acquired 55% of equity interest in Hong Lee Group (M) Sdn Bhd which its principal activities are engaged in manufacturing of aluminum based kitchen cabinet and glass cabinet. The group had a quite balance revenue with 60% local and 40% export.

Outlook on Aluminum Application on Automotive Industry

The improvement of technology, the strive to see better efficiency and reduction on CO2 had continue to push for better raw material input. One of the significant industry that will be heading for this big change will be the automotive industry.

Weight reduction is topping the list for automobile manufacturers in searching ways to improve fuel economy and freight efficiency. A research conducted by Ricardo Consulting Engineers had displayed that a commercial tractor-trailer can see it's weight reduced by 1,500 kg with intensive aluminum application. It is estimated that by replacing all of North America class 8 tractor-trailer, that will save 9.3 million tons of CO2 annually.

Aluminum is well positioned as the best solution for weight reduction in heavy and medium duty truck and trailer market. This is in tandem with the EPA (Environment Protection Agency) to tighten the emission profile of the heavy duty truck and trailer market.

With the intensive development from Tesla in changing the automotive industry through a commercialized production on Electric Vehicle, lightweighting play an even more important role.

Tesla had saw it's Model S production featuring intensive usage of aluminum. Data in 2014 reveal that automotive industry (excluding China) consumed 2.87 million tonnes of aluminum. By 2020, the industry will be looking to see a consumption of 4.49 million tonnes of aluminum a year.

Every 1 kg of aluminum used in the car production will reduce the overall weight of the vehicle by 1 kg. For this reason, the application of aluminum are rushing into car parts such as engine radiator, wheels, bumpers, suspension parts, engine cylinder blocks, transmission bodies and body parts (hood door and frames).

A-Rank Berhad and Lb Aluminium Berhad Synergy

A-Rank Berhad and Lb Aluminium Berhad will be seeing further synergy in the foreseeable quarter after significant entry from low profile businessman - Datuk Leow Chong Howa, into A-Rank Berhad.

Datuk Leow surfaced as A-Rank Berhad substantial shareholder after acquiring 27.74% stake in April 2016. On the other hand, Datuk Leow already had 30.17% stake in LB Aluminium Berhad.

Arank is Malaysia largest manufacturer and supplier for aluminum billets, and resemble one of the leading suppliers of aluminum extrusion billets in Asia. On the other hand, Lbalum is the largest supplier of aluminum extrusion in Malaysia and too among the large player in South East Asia.

One would then easily imagine that Arank billets would be used by Lbalum to produce extrusion, forming a vertical integration in the supply chain. According to familiar industry sources, Arank will benefit greatly by becoming an upstream supplier to Lbalum, interpreting to regular steady orders, while Lbalum will enjoy a stable and competitive supply of raw material, of course with better pricing. Expanding vertically will prevent disruption in the supply of input material and reduce threats from suppliers, especially those with greater bargaining power.


Strong Aluminum come back

Aluminum had saw a break away from the long term down trend line that is plagued by oversupply, mainly from China. While most of the factory and production plant are totally shut down, restarting it will easily take up 4 to 6 months.

Aluminum is looking strong to push towards the range of 2,000 in the near term, raising great prospect to aluminum billets manufacturer like Arank in the coming quarters.

The strong rebound in the commodity prices of aluminum had saw major player such as Press Metal reacting immediately.

Medium sized aluminum billets manufacturer such as Arank will be looking to capture investor attention in the coming days.

A-Rank Berhad resting on short term up trend support line

Technical outlook indicate that Arank had good accumulation at the open market in the region of RM 0.65 to RM 0.70. Furthermore, new substantial shareholder, Datuk Leow Chong Howa, acquired his block at the price of RM 0.60.

Given the current rising aluminum price due to closure of Aluminum manufacturing plant in China, as well as increased usage of aluminum in consumer products and electric, it is feasible to annualized Arank consistent performance from 2 previous quarter of a total EPS of 6 cents to a complete EPS of 12 cents for FYE 2016.

Conclusion

Arank will be an interesting company to look out given its bright prospectus. Salient point to take note on Arank includes :

- Emergence of Datuk Leow Chong Howa as substantial shareholder, common shareholder for LB Aluminium Berhad. Datuk Leow will create synergy between the 2 companies in vertical supply chain.

- Aluminum commodity prices broke away from long term down trend prices, signalling a strong rebound, interpreting to better margin for aluminum billet manufacturer such as Arank

- Application of aluminum in more consumer product, with main consumption on automotive industry, using aluminum as a light weighting solution.

- Arank potential FYE 2016 EPS at 12 cents, valuation of PER x10 will see Arank priced at RM 1.20, potential near to 100% capital appreciation from current price of RM 0.67.

Bone's short term TP : RM 1.00

Cheers and have a nice day.

Regards,

Bone

ARANK (7214) - Arank - Rising Alloy
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