SHAREHOLDERS can look forward to accelerating earnings growth at Aluminium Company of Malaysia Bhd (Alcom) after three years of lacklustre performance.
“We were bogged down by a restructuring exercise in the past few years. But now we are on solid fundamentals to move forward after divesting the loss-making extrusion business,” managing director Chan Kok Heng told StarBiz in an interview in Klang.
Alcom currently manufactures coated fin stock – an air-conditioner component – and aluminium food packaging products, where demand for both is growing strongly.
However, not many know that Alcom had won accolades for its extrusion business, supplying to two of Malaysia's landmark projects the Petronas Twin Towers and the KL International Airport.
Those were moments to celebrate, but they didn't last long.
Alcom's extrusion division experienced a drastic drop in sales as mega sky-scrapper projects declined in numbers. The division, once a major income generator, slipped into the red and dragged down the group's results.
“It was a painful decision to make and it took guts to make that decision,'' Chan said but stressed that it was the best way to enhance shareholder value.
The divestment of the extrusion business – at a RM11mil loss – in a way was a blessing for the company, for it also managed to sell the piece of prime land on which the plant stood in Petaling Jaya for RM46.9mil cash.
The proposed land sale will boost the group's cash pile to RM92mil.
Chan said Alcom could now focus on what it could do best: producing rolled products.
He said the management could concentrate their efforts on enhancing earnings growth, without worrying about how to stop the bleed in the extrusion division.
Rather, Alcom's worries now are whether it can keep pace with the increasing orders for coated fin stock and food packaging.
Chan said the group had eased the bottlenecks at its plant in Bukit Rajah, Klang, to ramp up production. And the fin stock output is expected to double next year.
“The first-quarter results speak well for us,'' he said. Alcom chalked up a 61% rise in pre-tax profit to RM4.5mil from RM2.8mil, on marginally higher revenue of RM69.9mil, for the first-quarter ended March 31.
Earnings per share came in at 2.1 sen versus 1.31 sen previously.
For the full-year to Dec 31, 2003, the group incurred a pre-tax loss of RM4.5mil against a pre-tax profit of RM9.7mil in the previous year. Revenue amounted RM264mil compared with RM261mil a prior year.
Alcom ventured into food packaging in late 2002 to secure a new income source to fill the vacuum created by the extrusion business.
“It is a strong growth market. Our approach will first focus on the domestic market,'' Chan said.
He said that being a newcomer to the market, Alcom needed some time to win a fair share of the market.
The domestic market consumes about 10,000 tonnes of aluminium packaging products a year. And demand is growing in tandem with the affluence of the population and modern lifestyle.
Chan said the group wanted to offer its products as a substitute for imports, which now commanded 60% of the market. There are now only two local players in the domestic aluminium packaging product market. “We have flexible packaging products to serve various needs,'' Chan said.
Besides being used as diaphragm foil in Milo or milk powder tins, Alcom's aluminium packaging products are also used for three-in-one coffee powder and as refill pack for milk powder.
Chan said Alcom was now looking at providing cigarette packaging.
Alcom may be a little-known Bursa Malaysia-listed company. But the group's products are much sought after by large air-conditioner manufacturers in Asia.
The group is the world's second producer of coated fin stock that has hydrophilicity property, an essential feature to prevent water from clogging the airflow system in air-conditioners.
Among its customers are Toshiba, Hitachi, Matsushita, OYL and Carrier.
While it is reducing emphasis on the Chinese market, because competition has turned unhealthy, Alcom is establishing its presence in the Middle East where air-conditioners are definitely a necessity the year round.
Also, Chan pointed out that many Japanese fin stock makers had shifted focus back to their home country against the backdrop of improving economic conditions there. “This creates a room for Alcom to expand,'' he said.
According to Chan, Alcom's existing business model allows it to have exposure to the export market via the fin stock division and the local market through its packaging materials division.
And Alcom is unlikely to face any constraints in expanding its production facilities should its business volume balloon. “We have land-bank surrounding our existing plant and also a large cash reserve,'' Chan said.