Malaysia based A-Rank Bhd and LB Aluminium Bhd have entered into a potetial synergy that is expected to yield higher returns for both the business entities in the foreseeable quarters. The companies now have a common single largest shareholder in Datuk Leow Chong Howa, a low-profile local businessman.
Leow, 57, the executive chairman and major shareholder of LB Aluminium, surfaced as a substantial shareholder of A-Rank with a 27.74 per cent stake last month. He holds a 30.17 per cent direct stake in LB Aluminium, while his family members own another 15 per cent in the aluminium extrusion specialist. Leow, who was appointed to the board in 1985, had been the managing director of LB Aluminium since its incorporation.
A-Rank is the country's largest manufacturer and supplier of aluminium billets, and one of the leading suppliers of aluminium extrusion billets in Asia.
LB Aluminium, on the other hand, is the largest supplier of aluminium extrusions in Malaysia and among the largest manufacturers in Southeast Asia.
Considering that A-Rank and LB Aluminium claim to be two of the largest regional players in their respective segments, it will be interesting to see what plans Leow has — and more importantly, the synergy that can be achieved — for the two companies.
“I would imagine that A-Rank’s billets would be used by LB Aluminium to produce extrusions, so this sounds like an example of vertical integration in the supply chain,” says one industry observer.
“By sourcing the billets from A-Rank, LB Aluminium would be able to enjoy a stable and competitive supply of raw materials, not to mention better pricing. As for A-Rank, becoming an upstream supplier to LB Aluminium means it would gain a steady customer that makes regular orders,” expalined another industry analyst.
“Expanding vertically could prevent disruptions in the supply of input materials and reduce threats from suppliers, especially those with greater bargaining power,” he adds.
The transaction was done off market at 60 sen apiece, representing a slight discount of 1.6% to the closing price of 61 sen on that day. The shares were valued at a historical price-earnings ratio of 7 times, and price-to-book value of 0.7 times.
