LB Aluminium is underrated

Koon Yew Yin 7 April 2021 

My intention for writing this article is to help investors to make more money. Whether you buy or sell does not make affect the market price because the daily traded volume is more than 10 million shares. I am obliged to tell you that most of my money is on this stock. 

Business Back ground 

LB Aluminium Bhd is a Malaysia based company principally engaged in the business of manufacturing, marketing and trading of aluminium extrusions. Their product acts as a raw material for transport, construction, consumer goods, packaging as well as electrical engineering due to its lightweight, an excellent conductor of electricity and durability in nature. The company has expanded its business across Europe, North America, China, Australia, New Zealand and South-East Asia.

The company is one of the largest producers of aluminium extrusion products in Asia as shown below. 

Aluminium Extrusion

With high accuracy and sophisticated technology, our products meet the most stringent and specific requirements set by our customers across different industries. We offer extrusion for aluminium alloy 1070, 6005, 6061, 6063, 6082, as well as special alloys, with extrusion profiles measuring up to 300mm in CCD (Circumscribing Circle Diameter) and extrusion length up to 12 meters. Diversity, quality and consistency are hallmarks that we pride ourselves in. 

China managed to stop the spread of the Covid 19 virus in Wuhan within a few months and all the factories started working full steam ahead. 

As a result, China has increased its net import of primary and alloy aluminium to record high in the last 10 years as shown on the above chart. 

The chart below shows that the price of aluminium has been going up in the last 1 year. It has gone up about 50% in the last 1 year.  

The above price chart shows that it is on up trend. The last traded price was 93 sen per share. It is likely to go up continuously.  

My target price:  

Its latest EPS was 6 sen and its previous quarter EPS was 3.76 sen. It shot up 60% from the previous quarter.

This shows that the company has been making and more profit every quarter. It is very safe to assume its EPS for each of the next 3 quarters will be 6 sen, its annual EPS will be 24 sen.  

Based on PE 10, L B Aluminium share should be valued at Rm 2.40 per share.   

Additional information 

Everyday Uses for Aluminium Extrusions

Extruded aluminium has helped create the ease in our lives today. Major components of cars, subway trains, bikes, airplanes, and boats are manufactured using aluminium extrusions. This doesn’t include only the exteriors of the vehicle, but also the internal framework and the fasteners that hold it all together. The internal parts of the computer you’re reading this on, along with the keyboard and mouse that you use and the desk that your computer sits on, all made with aluminium extrusions.

More than you know is made with aluminium extrusions. From the intricately grooved bleachers in stadiums and sports fields to the display units used in stores, all made with extruded aluminium.

The Extrusion Process

Extrusion is a process of shaping different molten metals and plastics by forcing them through shaped designs at extremely high pressures. Because of how flexible the process is, there are many different ways to perform the extrusion, including either hot or cold, and continuous or semi-continuous.

Try thinking of the extrusion process like making pasta. The dough is sent through a press, which emits long, continuous strands of spaghetti. The process with aluminium extrusion is very similar, except on a much bigger scale. The process involves workers melting down the metal until it is molten and then transferring it to the extrusion machine. This machine then via a hydraulic or mechanical press, forces the molten aluminium through a steel die at high pressure. If it is a continuous extrusion, the press will continue to force the metal through in one long, continuous section until the piece is done. If it’s semi-continuous, the press will cut off pieces one by one as it is extruded.

Aluminium Extrusions in the Auto Industry

Aluminium plays a very important role in the auto industry. The metal provides resistance to the long-term environmental effects of temperature, moisture, and the corrosiveness from road salt. Everything from body and frame components to radiator enclosures, drive shafts and cylinder liners may be made from aluminium extrusions.

Extruded aluminium’s high strength-to-weight ratio makes it the perfect metal to be used in the auto industry. Allowing the vehicles to carry more, be faster, and all at a lower cost because of it being lightweight and strong.

Extruded Aluminium in Construction

Extruded aluminium products for construction are versatile, both in application and production. For example, lightweight extruded aluminium panelling and guide rails are common in trailer, shed, and furniture construction, however, denser structures are becoming more common.

Extruded aluminium isn’t just limited to exterior design and function though. Lighting fixtures, elevator shafts, and stairwells all employ many different applications of extruded aluminium. Additionally, while aluminium can’t make up the basic skeleton of a building it does accent and aids the structure in the interior of the building. Integrated extruded aluminium designs are featured in almost all areas of building construction including plumbing. Below are some examples from a recent project that we just finished.