Semenyih-based LB Aluminium Bhd is looking to undertake another major expansion exercise this year, in line with the growing aluminium extrusion industry in Malaysia.
It is currently in the midst of preparing the budget for the expansion. However, details of its expansion will only be finalised by the end of July. “We are still planning what to do, what to expand and what to buy, but no firm decision has been made as yet,” says chief executive officer Mark Wing Kong.
Three years ago, the company underwent a major expansion of capacity, which cost about RM40mil.
“It took time to absorb that. So in the financial year ending April 30, 2015, we are looking at another expansion to expand capacity as we still feel there is still growth for Malaysia for the aluminium extrusion industry.
“We are quite confident of the direction of the country and hence confident enough to expand further,” says Mark.
The company’s expansion will either be by way of capacity, new products, and or, new markets, he adds. On another note, the company has no plans to go into the upstream side of the industry.
Mark says any expansion will be internally funded. “Our financials are very strong, so we don’t foresee going to the market to raise funds,” he says.
According to Bloomberg data, LB Aluminium’s 2013 net debt to earnings before interest, tax, depreciation, and amortisation ratio stands at 1.46.
LB Aluminium continually upgrades its processes and equipment as needed. Mark tells StarBizWeek that the company spent some RM20mil in capital expenditure (capex) in the 2014 financial year. “We keep finding ways to upgrade and automate to cut cost, and to save electricity, gas, and water,” says Mark.
The company’s production facilities are located on 30 acres in Beranang’s industrial park. It also has another factory in Sarawak, spanning five acres to cater for demand in this state and Sabah. “It’s basically to reduce our transport cost. We can also service our customers faster and are closer to market,” he says.
Both factories are currently operating at about 70% capacity, which Mark says is an ideal level for the company, as it needs to have spare capacity at any point in time.
“The industry can be a bit lumpy. For example in the last quarter, because of the Chinese New Year festivities, volumes were down. Then in April it caught up. It is these types of situations that we need to worry about. We need the extra capacity to cater to this,” he says.
Turnover of orders, which are primarily for the building and construction industry, are higher now that its clients are moving towards keeping less stock in hand.
“Lately most builders are moving towards green index buildings. Typically a green building would use more for aluminium, which works out as a bonus for us. We expect this trend to continue into the future,” he says.
The company also caters to other industries such as electrical and electronic, transportation, engineering, solar, household tools, and furniture among others.
LB Aluminium is also considering building an extension to its factory in Beranang. It has six acres within the same area. “That was to cater for future expansion,” says Mark.
The company’s current production facilities include 17 extrusion presses with an annual production capacity of 90,000 tonnes. This includes a fully integrated 4,300 tonnes extrusion press, the largest press in Malaysia to-date.
It also has a fully-automated vertical powder coating line, and together with its two existing horizontal powder coating lines, can cater for capacity of 24,000 tonnes.
Currently, the company has two anodising plants, one of which is Malaysia’s first and only eco-friendly vertical anodising plant, which is fully automated to obtain consistency and uniformity of quality anodised finishes.
It also serves as a one-stop solution centre for its clients, in providing value-added services such as cutting, degreasing, hole punching, stamping, and tapping among others.
LB Aluminium’s die-shop is equipped with the latest CAD-CAM software, which enables it to design and manufacture die-moulds, which comprise various complexities.
The company currently holds 25% of the market share in Malaysia. While it predominantly caters to the domestic market, it exports some 30% of its products to the UK, Australia, North America, South-East Asia and Japan.
“We will not focus on any individual market, but on all our export markets. We will diversify our customers rather than regions we supply to,” he says.
In the past year, the counter saw its share price gain 54% to 67 sen on Friday. It currently trades at around 7.6 times its historical earnings, compared with its peers like Press Metal Bhd and Tong Herr Resources Bhd , which trade at 100 times and 13.3 times respectively.
“It is still below our net asset value, which is more than RM1, which represents a 30% discount,” Mark says.
He foresees steady growth for the company in the next few years. “The aluminium business is something that grows together with the economy of Malaysia. Going by what the country is forecasting in the next few years, we will register gradual growth in the next few years,” he says.
In the third quarter of 2014, the company saw slight decline in net profit and revenue to RM4.88mil and RM96.62mil respectively on the back of lower business volume following the festivities during the quarter.
LB Aluminium is position where it can afford to pay more dividends, which could be something that shareholders could look forward to. It has been religiously paying 1.75 sen per share in dividends for the past few financial years.