LBAlum- an attractive building material stock

Background

LB Aluminium Bhd ('LBAlum') is involved in the manufacturing, marketing & trading of aluminium products, such as aluminium extrusion, expanded mesh, sheets/coils, ceiling suspension system, fittings & accessories. Currently, its main market is Malaysia which accounts for 75% of its revenue while the remaining 25% are exported to Singapore and other neighboring countries.

Results Update

For QE31/10/2013, LBAlum's revenue has risen steadily over the past few quarters due to higher sales volume & higher average selling prices. Profit margin has risen from 2% in 2011 to 6% today. As a result, we can see that  LBAlum's net profit rose 150% to RM22.0 million for the last 4 quarters compared to RM8.8 million achieved in the preceding 4 quarters.


Table: LBAlum's last 8 quarterly results


Chart 1: LBAlum's last 17 quarterly results

Financial position

LBAlum's financial position as at 31/10/2013 is deemed satisfactory with current ratio at 2.1x and gearing ratio at 0.3x. Working capital management improved marginally with debtors' collection period & inventory holding period improved from 170 days to 166 days and from 109 days to 98 days, respectively. Cash holdings rose from RM21 million as at 30/4/2013 to RM31 million as at 31/10/2013 (or, amounting to 12 sen per share).

Valuation

LBAlum (closed at RM0.52 yesterday) is now trading at a PE of 5.9 times (based on last 4 quarters' EPS of 8.8 sen) or at a P/BV of 0.5x. Dividend yield is at a decent 3.4%. At these PE & P/BV multiples, LBAlum is fairly attractive.

Technical Outlook

LBAlum broke above its downtrend line at RM0.38-0.40 in May this year. Its immediate resistance is at the recent high of RM0.55-0.57 and, beyond that, it may encounter resistance from the 2010 high of RM0.60-0.63. Its immediate support is at psychological level at RM0.50 and the horizontal line at RM0.47.


Chart 2: LBAlum's weekly chart as at Dec 11, 2013 (Source: Tradesignum)

Conclusion

Based on good financial performance & attractive valuation, LBAlum could be a good stock for a medium-term investment.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, LBAlum.