Monday, July 9, 2007

Good Value - Analabs Resources Bhd

Business Involved … dated July 2007

The company has 40 years’ experience in the environmental business and is involved in three core operations – recycling and waste management, aquaculture and repackaging of chemicals.

Its two recovery and recycling plants were located in Nilai, Negri Sembilan and Shah Alam, Selangor.

The business includes environmental engineering, which involves designing and building water treatment plants for the automobile, electronics, rubber and food processing industries.

Its Value …

As at end-April 2007, it had net cash of RM35.2mil, translating into net cash per share of 59 sen. Net tangible asset (NTA) stood at RM1.59. Besides the net cash, its property, plant and equipment are worth RM57.2mil.

Analabs owned RM51mil net book value of properties comprising office buildings, factories, warehouses and industrial land in Kuala Lumpur, Selangor, Penang and Negri Sembilan based on 2003 prices. If these were revalued at present prices, there could potentially be revaluation surpluses that could add to Analabs’ net assets chest.

As at end-April 2007, the cost of investment in quoted securities stood at RM5.1mil while their market value amounted to RM6.1mil. The bulk of investment is in Genting shares. As announced on May 25 2007, Analabs’ cost of investment in Genting shares totalled RM4.4mil.

Such investments were bought using internal surplus funds, and were aimed at generating higher returns than that of fixed deposit rates and classified as long term investments in the balance sheet for dividend yield and potential capital appreciation. If revalued at current market value, the share investment would translate into a higher NTA of RM1.61.

Assuming that the financial assets were stripped off from the share price, one could be paying only 49 sen per share for the business.

Financial Results …

During financial year ended Apr 30, 2007 (FY07), Analabs posted almost 210% increase in net profit to RM8.4mil from RM2.7mil in the preceding year. Better income derives from the recycling and waste management, and repackaging of chemicals divisions.

Moreover, net profit in FY06 was adversely affected by one-off impairment of RM1.2mil. Earnings per share in FY07 stood at 13.99 sen against 4.5 sen previously.

Revenue in FY07 improved to RM35.4mil from RM34.1mil previously. Excluding the RM1.8mil gain from disposal of shares in FY07, net profit stood at RM6.6mil, still 144% higher than in FY06.

Revenue Stream …

Based on FY07 results, the recycling division contributed over 50% of revenue and 34% of pre-tax profit. The balance sheet indicated that net assets of RM95.6mil were supported by solid assets.

Pre-tax margin for the aquaculture division is attractive at about 56%. While it only contributed 8% to revenue, it comprised 21% of pre-tax profit in FY07.

Its repackaging business accounted for RM21.7mil of revenue and RM810,000 of pre-tax profit.

Going forward …

Analabs is set to benefit from the enforcement of two new Bills on waste management – the Solid Waste and Public Cleansing Management Bill and Solid Waste and Public Cleansing Corporation Bill – passed by Dewan Rakyat.

With strong solid assets and strong cash position, its management indicated that it was seeking various mergers and acquisition options and diversification into new businesses while concentrating on its core business of recycling and aquaculture.

Given the progressive development in the country’s recycling industrial waste management and aquaculture industries, Analabs should be able to continue expanding and generating more returns to shareholders.