ARANK - Post Q3 2017 Result

ARANK first appeared in my blog on 30 March 2017. You can also click HERE to view my first post about ARANK. ARANK's A-RANKed Mission Impossible??? Well, i think its possible, because I M POSSIBLE~

1. Fundamental Analysis

Revenue and Net Profit for ARANK from malaysia stock biz [2]

ARANK announced the Q3 2017 result on 15 June 2017. Both revenue and net profit shown positive improvement in both qoq and yoy. Revenue increased  +4% qoq and +4% yoy respectively while net profit increased +4% qoq and +18% yoy respectively.

The increase in revenue is due to higher average selling price as a result of the increase in the raw material costs although the business volume was lower[3]. From this statement, i can see that the management is transferring the cost to the end user. The worrying factor will be the lower business volume, which might signifies flat growth or declining growth. However, the management highlighted 3 points in the prospects. First is the recovery in the commodity prices as external demand improves. Second is their business is affected by the weakening RM but our RM is getting stronger if compared to last quarter. Third is the volatility of aluminium has added uncertainties to their business. The point 1 and 2 are on ARANK's side. While for bullet point number 3, i will share my views based on data i collected in my Projection Analysis sector.

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Quarterly Revenue and Net Profit

By looking at the trend, the Q4 net profit will hit the highest. And not only the Q4 will be the highest, as years go by, it will continue to go higher and higher. So roughly, by looking at the trend, we can assume the Q4 for 2017 will be higher than RM5.3 Mil. After disposing one of their subsidiary HongLee Group on 25 January 2017, it seems that ARANK still can maintain the revenue. We also can observe the reduction of Non Current Asset (Land, Building etc) decreasing due to the disposal of HongLee[3]. 

Disposal of HongLee[4]

The disposal of HongLee will not have significant impact on ARANK's EPS, as only will be exposed to a net loss of around RM0.1 Mil. Hence, investor do not need to worry too much. For me, the disposal is a good news as the management will be concentrating on its profitable operations through divestment of the loss generating business. HongLee is a loss making company, hence ARANK had decided to dispose it.

As of now, ARANK had been maintaining the net profit margin above 3.00%, which is much better if compared to last year. So, i will expect the Q4 also to have at least a steady QR and the net profit will be creating a new high. 

The sales in Malaysia still remains the biggest, which is 71%, followed by SEA (16%) and Africa, Europe and South Africa (14%). If we study the geographical revenue, Malaysia had recorded +1% yoy and +11% qoq respectively; For SEA, the revenue had dropped -3% yoy and -33% qoq respectively. The biggest improvement is the other countries (Africa, Europe and South Africa) whereby the revenue increased +43% yoy and +58% qoq. The revenue percentage from the other countries had been increased from 9% to 14%. Meaning to say, in the future, the revenue from those countries will play an important role in ARANK's growth. We should be monitoring this segment too~

ARANK's Geographical Segment Performance

2. Technical Analysis

ARANK Daily Chart

ARANK previously gapped down on 30 March 2017 due to unsatisfactory result. On that day, ARANK gapped down with high volume, meaning to say a lot of people lost confidence in ARANK and almost everyone decided to sell ARANK shares. After 3 months of sideways between 1.00 to 1.10, at the same time forming a double bottom, finally ARANK had filled the gap confidently with a higher volume than the previous gapped down.

I am convinced this current QR had regained the investors' confidence. If ARANK can stay above the support of 1.17 for more than 5 trading days, i can say that 1.17 is a support. The next resistance is 1.24. As of now, the candle had flown to the upper band, aligned with RSI, it is slightly overbought. I expect the share price to retrace in the next few days and later continue to challenge the 1.24. Once broken the 1.24, then ARANK is in the all time high and sky is the limit!

3. Projection Analysis

For the Projection Analysis, let's first look at the global aluminium price.

A) Global Aluminium Price

Aluminium Price[5]

Aluminium chart had been going sideways for the past 6 months, hovering around 1,871 and 1,966. The current support is at 1,870, aligned with the uptrend line that i drawn. Now is the critical moment for aluminium chart. But do not forget that aluminium price had risen since Dec 2015, from 1,450 to the current 1,800. Anyhow, the aluminium price sold will be higher than 1 year ago. That is why i am still convinced that ARANK's incoming QR will be better than last year even though there are no growth. Unless the aluminium price dropped back to 1,500. For the aluminium price to fall back to 1,500, there must be a global incident. Which now, there are no sign of it. In fact there are a lot of signs that aluminium price will continue to surge up.

B) China vs Pollution

China To Order Steel, Aluminium Curbs to Fight Pollution [6]

The plan calls for cuts in aluminum capacity of more than 30 percent across 28 cities, and by about 30 percent for alumina capacity[6]. The London aluminum price has this week hit a 20-month high of $1,883 per tonne on speculation about the potential for capacity closures in China. There's a lot of potential capacity that could be affected, something like 15-16 million tonnes, according to Shanghai Metal Market[7]. Do note that this is all proposal and there are still no confirmation from the China government. If the China government is firm to cut the aluminium supply, then when the demand is still the same, while the supply is lesser, the price will be going up.

C) Peer Comparison

Same as my previous post, i will perform a peer comparison among PMETAL, ARANK, LBALUM and ALCOM.

Peer Comparison among Aluminium Counters in Malaysia

PMETAL is still the dragonhead due to its market capitalization. In The Edge Financial Daily dated 16 June 2017, PMETAL mentioned that they are confident that the price of aluminium of this year will be higher than last year, ranging from US1,800 to US1,900 due to Chinese government, as mentioned previously[8]. And their business will continue to grow.

And since PMETAL is the dragonhead, when the dragonhead moves, normally the smaller caps will also follows. Not to forget that ALCOM also announces a 20.5 sen of dividend EX on 3 July 2017, which triggered share price to go up from 1.3 to 2.00 in just 2 months, around 50% in 2 months. And LBALUM share price had been performing good too. Maybe this is the market concensus towards the incoming aluminium industry. Since steel had already moving up and up, if we missed the steel counters, then, we should not miss aluminium counters. Either you want to catch the dragonhead or the other aluminium counters in Malaysia, the decision is up to you.

D) Calculating the Target Price

The average PE among the aluminium counters is still around 14.

ARANK had announced 3 quarters of QR, with the cumulative three quarters of EPS at 10.31 sen. If we annualize the EPS, the projected EPS is 13.75 sen.This is without considering the Q4 factor that happened to ARANK in the past few years.

If EPS = 13.75 sen, with the projected PE of 10, the share price is 1.38, round up to 1.40

If EPS = 13.75 sen, with the projected PE of 12, the share price is 1.65

If EPS = 13.75 sen, with the projected PE of 14, the share price is 1.93, round down to 1.90

If i take into the consideration of the Q4 factor and project the EPS to be 14 sen,

If EPS = 14.00 sen, with the projected PE of 10, the share price is 1.40

If EPS = 14.00 sen, with the projected PE of 12, the share price is 1.68, round up to 1.870

If EPS = 14.00 sen, with the projected PE of 14, the share price is 1.96, round up to 2.00

Summary: 

Can ARANK continue to score an A in his missions? Remember what i had written in the previous post, if the share price continue to drop, you can just wake me up when September ends...

- ARANK just released its Q3 2017 result, yoy and qoq recorded positive movement.

- Aluminium together with steel are the most important commodities for the country's development and building infrastructure.

- If we observe the trend, the Q1, Q2 and Q3's net profit will be dropping, spiking up in Q4. The yoy net profits are better than previous years.

- The current support for ARANK is 1.17 with the resistance of 1.24.

- If ARANK can stay above the support of 1.17 for more than 5 trading days, then the current support 1.17 will be a solid one due to the Price Volume Analysis.

- If we annualized the EPS and take the average PE among aluminium counters, my Projection Analysis for the target price of ARANK ranges from 1.60 to 2.00

- A few things to take note, global aluminium price, USD/MYR, US Donald Trump's policy,  China's action item towards curbing the air pollution, PMETAL's movement and also the QR for ARANK.

- If you had missed steel counters, why not consider the aluminium counters? Since we have PMETAL, ALCOM, LBALUM and ARANK. All of them are moving up in good sentiments.

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Let's Ride the Wind and Gainvest

Gainvestor 10sai

18 June 2017

7.25pm

Sources:

[1]: http://gainvestor10sai.blogspot.my/2017/03/aranks-ranked-mission.html
[2]: http://www.malaysiastock.biz/Corporate-Infomation.aspx?securityCode=7214
[3]: http://www.bursamalaysia.com/market/listed-companies/company-announcements/5461809
[4]: http://www.bursamalaysia.com/market/listed-companies/company-announcements/5325041
[5]: https://www.investing.com/commodities/aluminum-advanced-chart
[6]: https://www.bloomberg.com/news/articles/2017-03-01/china-said-to-order-steel-and-aluminum-curbs-to-fight-pollution
[7]: http://www.reuters.com/article/us-china-aluminium-home-idUSKBN15A1UM
[8]: The Edge Financial Daily dated 16 June 2017.