Company Overview: Altech Chemicals Limited (ASX: ATC) is focused to supply high purity alumina (99.99%), which is a high margin & high demand product, and find its application in the manufacturing of lithium-ion battery as a coating material. In this regard, it is constructing a 4,500 tpa high purity alumina (HPA) processing plant at Johor, Malaysia.

ATC Details

Improvement in Balance Sheet Along with Key Project Developments:  The company has announced the development of an innovative method for the coating of graphite particles in September 2020. The technology involves the coating of graphite particles with a nano layer of alumina and the efforts to include the silicon particles with alumina continue at ATC’s R&D facility, in Perth, Western Australia.

FY21 Key Highlights:

• In December 2020, the Group’s particle coating technology was confirmed through the completion of a first-phase coating trial of graphite particle coating at Curtin University, Western Australia and examination of the trial results at the University of Western Australia.
• The company’s technology witnessed increased traction of demand following its announcement in March 2021, that its nano-layer coating technology had been successfully applied to the coating of silicon particles.
• In November 2020, the Group had entered into an agreement of collaboration with a leading silicon producer to develop high capacity, long cycle life silicon anode active material for use in lithium-ion batteries.
• The company has also signed a collaboration agreement with SGL Carbon of Germany, in April 2021, in order to collaborate and support ATC’s development of high purity alumina coating of graphite materials.
• It has established an R&D laboratory in Perth, Western Australia in March 2021 to further its research on methods for the alumina coating of graphite and silicon particles.
• There was an uplift in the revenues to $8.05 million in FY21, compared to $0.93 million in FY20 owing to the sale of 25% of its German subsidiary, Altech Industries Germany GmbH (AIG).
• It ended the year with a cash balance of $6.73 million as of 30 June 2021, compared to $0.83 million in the pcp end.

Cash Balance Trend (Source: Analysis by Kalkine Group)

Stake Sell of German Subsidiary:

The company has sold 25% of its stake in its wholly-owned German subsidiary, Altech Industries Germany GmbH (AIG) to Altech Advanced Materials AG for a consideration of $8.3 million, and to be paid in several tranches. Following the sale, Altech Industries Germany GmbH has announced the commencement of a preliminary feasibility study (PFS) for the construction of a high purity alumina (HPA) battery materials coating plant, in Saxony Germany.

Discovery of Halloysite:

On 13 October 2021, ATC has announced the discovery of halloysite at its Kerrigan kaolin deposit in Western Australia, during the processing of samples from its 2020 air-core drilling campaign.

Top 10 Shareholders: The top 10 shareholders together form around 37.91% of the total shareholding, while the top 4 constitute the maximum holding. Deutsche Balaton Aktiengesellschaft  and MAA Group Bhd  are holding a maximum stake in the company at 12.64% and 7.07%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics:  The company reported a turnaround in ROE performance in FY21 to 3%, compared to negative 5.3% in FY20. There has also been a significant improvement in the liquidity with current ratio at 10.16x in FY21, compared to 0.14x in FY20.

Liquidity & Leverage Profile  (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the following risk factors:

• Raw Materials Risk: The Group plans to source feedstock for its processing plant at Johor, Malaysia, from its kaolin deposit at Meckering, Western Australia. Any challenges while shipping or transportation may impact the operations of the company.
• R&D Risk: It is also incurring a significant amount in its R&D activities and any failure to generate revenues poses a threat to the sustainability of the company in the long run.
• Technology Risk: ATC is dependent on its technological prowess to achieve its objectives and any challenge to retain key talents might impact its operations.

Outlook: High purity alumina (HPA) is considered to be a critical ingredient for the production of synthetic sapphire, which in turn is used for the manufacture of substrates for LED lights, semiconductor wafers used in the electronics industry, to name a few.  The HPA global market is expected to grow from US$1.6 billion in 2021 to US$11.5 billion in 2031, and to US$33.8 billion by 2038. This augurs well for the company, which is in the midst of building its high purity alumina (HPA) plant site in Malaysia.

Stock Recommendation: As per ASX, the stock of ATC is trading above its 52-weeks’ average levels of $0.035-$0.135. The stock of ATC gave a positive return of ~12.35% in the past one month. On a TTM basis, the stock of ATC is trading at a P/BV multiple of 1.5x, lower than the industry median (Basic Materials) of 2.6x. Considering the valuation on TTM basis, strong balance sheet, acceptance of its coating technology, expected increase in demand and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.096, (as on 16 November 2021, 01:08 PM (GMT+10), Sydney, Eastern Australia).

Technical Insights:

ATC prices broke the downward sloping trend line by upside and the prices are sustaining above the same from past three weeks' that indicates our bullish stance. There is a golden 21-period SMA crossover over 50-period SMA that also gives a positive indication for the stock prices. RSI (14-period) is hovering ~48 levels on a daily chart that indicates that the stock is trading in positive momentum. Immediate support levels for the stock are AUD 0.084 and AUD 0.072, while immediate resistance levels are AUD 0.120 and AUD 0.145.

ATC Daily Technical Chart, Data Source: REFINITIV

NOTE: Altech Chemicals Limited (Company) is a client of Kalkine Media Pty Ltd (Kalkine Media), an affiliate of Kalkine. However, under no circumstances have Kalkine or its related entities been, directly or indirectly influenced in making any recommendation concerning Company as contained in this report, and no form of compensation is or will be received by Kalkine, Kalkine Media or Kalkine’s other related entities for the publication of this report.

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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