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Mixed growth prospects for Analabs
Ho Chung Teng 
Fernandez says Analabs is looking to expand its waste management business
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Low-profile building materials manufacturer Analabs Resources Bhd is involved in various businesses but investors are concerned the company may face limited growth catalyst.

This is because most of its future business plans are in the planning stage, pilot-stage (testing), or have been put on hold.

For example, one of its more viable expansion businesses – renewable energy (RE) – has been put on hold due to cost issues.

Analabs executive director Kan Mun Hoow says that the RE business has been put on hold as the RE farm is located too far from the national grid.

“In order to pull the cable to the national grid, it will cost about RM20 mil, so it affected the project’s return on investment,” Kan tells FocusM. The land, purchased for RM13 mil, is located in Carey Island, Selangor.

With the RE project put on hold, fund managers see little growth potential for the company in the near term as there is no significant business expansion or plans to spur growth.

Analabs is involved in various business segments, including the manufacturing and retailing of resin, chemicals and building materials, recovery and sale of recycled products (waste management), culture and retail of prawns, investing holding and property letting, as well as contract work, pipe laying and rehabilitation.

Meanwhile, its director, Clifton Heath Fernandez, explains that its solar power farming venture in Carey Island did not work out for Analabs as the surrounding area, which is currently owned by Sime Darby, has not been developed yet.

Fernandez adds that once Sime Darby develops the area, Analabs will then invest in the cabling.

Despite the lack of growth potential, a fund manager points out that the company still attracts investors’ interest mainly due to its numerous strategically located land banks. As of April 30, 2017, Analabs’ freehold and leasehold land, measuring 117.7 ha, was valued at RM81.03 mil.

The counter closed at RM2.25 on Nov 8, which is below its net asset per share of RM4.31 as at July 31.

“Analabs revalued its land bank in 2014 and the land bank should worth more today,” the fund manager says. He points out that Analabs is also a cash flow stable company as it has been generating operating cash flow on average RM20 mil yearly.

Moving forward, Fernandez says Kan, who was appointed to the board of Analabs on March 9, will spearhead the company’s future plans.

Kan is the son of Analabs’ executive chairman, Kan Yow Kheong. The elder Kan is the controlling shareholder of Analabs. As of July 26, he held 56.46% of Analabs.

Fernandez explains that with Kan being appointed to the board, Analabs has put in place its succession plan.

 

Integrated waste management player

Meanwhile, Fernandez says the company is looking to turning itself into an integrated waste management player as there is a variety of waste that needs to be disposed of by different industries.

“We are going to a more integrated waste management sector. Instead of waste products like oil and chemicals, now we want to go into general waste,” Fernandez adds.

He explains that the expansion will provide synergy to its current waste management business, as Analabs is already servicing the industry. “Instead of just taking one or two scheduled wastes, I will become a consultant to manage all their (clients’) waste,” he says.

Analabs plans to centralise its integrated waste management in three areas, namely Penang, Seremban and Shah Alam.

According to Kan, Analabs will use its existing warehouse and resources to drive its business expansion.

Fernandez says it will also capitalise on its transportation, waste collection and waste treatment licences for the expansion drive. At present, Analabs’ waste collection licence is only for scheduled waste.

“Now we have the resources in place for this. We are trying to capitalise on these (previous) investment or whatever assets we have now. We do have space in the warehouse.

“Apart from electronic waste, I can collect other waste materials, such as wood, metal, fluorescent lights and papers,” Fernandez adds.

He says the company is currently researching and getting its existing clients to understand Analabs’ concept as an integrated waste turnkey operator.

“We are not sure which (waste management) plant we are going to acquire. We will do a return on investment (ROI), and once we complete that, then we will know which waste industry we are doing,” he explains.

 

Expanding aqua business

In addition, the company is also looking at expanding its aqua-related cultivation segment. Analabs is currently operating pilot projects to identify the feasibility of fish and vegetable farming.

Analabs, which has a business cultivating prawns, hopes to include fish and vegetable farming.

Kan says plans on expanding the farming are still at a pilot-stage. “We will try the pilot first; we do not go full scale, as at the end of the day the risk is too high,” he adds.

Analabs aquatic business is located in a 103.5 ha land in Kuala Langat, Selangor. Kan says that capital expenditure for the business expansion into the aquatic business will be low, as the land is currently underutilised.

 

Lower profit and revenue

For the first quarter ended July 31, 2017, Analabs’ net profit declined 9.6% to RM3.1 mil from RM3.43 mil a year earlier on the back of lower revenue of RM38.95 mil versus RM40.57 mil.

The company attributes the lower net profit to higher operating expenses, especially in the recovery and sale of recycled products and the contract work, pipe laying and rehabilitation segments.

Analabs’ manufacturing and retailing of resin, chemicals and building materials business segment contributed 63.77% of the company’s total revenue in Q1FY18.

Moving forward, Analabs expects contribution from the building materials segment to improve, as its non-competitive agreement to retail ‘Coveright’ products will cease this year.

The business segment consists of its wholly-owned subsidiaries Coveright Services Sdn Bhd, which manufactures and sells resin impregnated papers, and Lux Distributor Sdn Bhd, which trades, imports and distributes ceramic tiles and building materials.

With the termination of the non-competitive agreement for ‘Coveright’, Fernandez says that Analabs will move to retail its ‘Coveright’ products to the European, Australian, New Zealand and the Middle East markets.

Waste management companies generate interest

Waste management companies, such as Analabs Resources Bhd, have seen an increase in investors’ interest since 2015. Analabs saw its share price rally from RM1.68 on Jan 1, 2015 to close at RM2.25 on Nov 8. This is despite the general perception that the company lacks growth impetus.

Among the eight listed waste management companies, AWC Bhd saw its share price surge from 30 sen on Jan 1, 2015 to RM1.08 on Nov 8, followed by Tex Cycle Technology Malaysia Bhd, which also saw its share price increase to 87 sen on Nov 8 (after 1-for-2 bonus issue), from 50 sen on Jan 1, 2015.

A stockbroker says increased investors’ interest in waste management counters is mainly due to companies such as Analabs having attractive price-to-earnings ratio and strong balance sheet.

He says generally, waste management companies’ earnings are recurring in nature and compared to other industries, it requires low capital expenditure. The stockbroker adds that external catalyst such as the increasing waste output, awareness of environmental factor and green energy has also benefitted the industry.

According to statistics from the Ministry of Urban Wellbeing, Housing and Local Government, Malaysia produces about 33,000 tonnes of solid waste daily, surpassing the ministry’s earlier target of 30,000 tonnes daily by 2020.

However, not all of the eight companies captured investors’ interest. Salcon Bhd saw its share price decline to 50 sen on Nov 8 from Jan 1, 2015.



This article first appeared in Focus Malaysia Issue 258.