Friday, 6 May 2016

LB Aluminium (3) - Excellent Result, Profit Back To Previous All Time High

Author: Icon8888   |   Publish date: Fri, 25 Mar 2016, 08:28 PM 

1. Introduction

The title of my previous article for LB was "Sun Rise or False Dawn ?". 

That was because in the previous quarter ended 31 October 2015, the group showed signs of turning around and I was not sure whether it will be able to sustain the momentum.

Today, LB released its January 2016 quarterly report. The result is very satisfactory. Looked like it is not a false dawn (touch wood).

2. Latest Quarter Result

Compared to previous quarter, revenue has not grown by much. However, EBITDA margin improved substantially, reaching an ALL TIME HIGH of 12.6%.

This item alone single handedly elevated net profit by almost 100% (compared to previous quarter).

As a matter of fact, in my previous article, I have identified EBITDA margin as an important factor to watch. Please refer to cut and paste below :-


In this latest quarter, it seemed that the group not only able to maintain the positive momentum, but improved further on it.

One of the contributing factor is of course the lower raw material cost (aluminium price was 1.8% lower). However, in my opinion, that should not be sufficient to deliver such strong growth in EBITDA margin. The group must have been successful in passing higher cost to customers, as mentioned in previous article.

3. Aluminium Price

For those not familiar with this group, let me point out (once again) that Aluminium is used as raw material by LB. As such, high Aluminium price will adversely affect the group, and vice versa. 

According to Index Mundi, latest Aluminium price is USD1,577 per MT.

This is an increase of 6.4% compared to LB's estimated cost of USD1,482 per MT during the period from November 2015 until January 2016. However, the Ringgit has strengthened from 4.328 per USD to 4.028 now. Based on the latest exchange rate, LB's estimated Aluminium cost is RM6,352 per MT. This works out to be approximately 1% lower than previous quarter's RM6,414 per MT.

Of course, the above figures are for discussion purpose only. The group's actual cost might be different as it is dependent on timing of buying, hedging policy, etc. However, the general idea is still that recent Ringgit strength could play a role in mitigating rise of USD Aluminium price. Let's wait for next quarter to find out the truth.

4. Concluding Remarks

I have only good things to say about this quarter's result. As mentioned in my previous article, LB has a difficult time in the past few quarters. However, it seemed that things had stabilised. Hopefully the positive momentum can be sustained. 

If you annualise the past 3 quarter EPS, you will arrive at EPS of 5.3 sen for FY2016. At current price of 50 sen, prospective PER will be 9.5 times.

However, if you annualise the latest quarter EPS, you will arrive at EPS of 8.4 sen for FY2017. At current price, prospective PER will be 6 times.

It is up to you to decide which EPS is more reflective of the group's prospects. Your money your choice.

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