Company Overview: Altech Chemicals Ltd (ASX: ATC) is engaged in the establishment of a research and development laboratory in Australia as a dedicated facility for the alumina coating of graphite and silicon particles. The company is also involved in the completion of early works construction activities (stage 1 and stage 2) at its high purity alumina (HPA) plant site in Malaysia. The company is targeting to become one of the world's leading suppliers of 99.99% (4N) high purity alumina via the construction and operation of the HPA plant.

ATC Details

Positive Market Sentiments to Fuel Future Business Growth: HPA is the critical ingredient required for the production of synthetic sapphire, which is used in the manufacturing of substrates for LED lights, semiconductor wafers used in the electronics industry, and scratch-resistant sapphire glass used for wristwatch faces, optical windows and smartphone components. As per the 2021 Annual Report, the global high purity alumina (HPA) market is likely to increase from US$1.6 billion in 2021 to US$11.5 billion in 2031 and to US$33.8 billion by 2038. This indicates a compound annual growth rate (CAGR) of ~21.2% from 2021 to 2031.

Capital Raising to Aid Financing of Project:

• As announced on 20 December 2021, the company has raised $2.2 million through the Share Purchase Plan (SPP) with extremely positive responses from the shareholders.
• The SPP follows the previously completed placement, which raised $8.1 million, leaving the company well-financed to advance its battery materials development.
• The company would use the proceeds from the SPP and the recent placement for (a) financing the construction of a battery materials coating plant in Germany; (b) purchase of land at the Schwarze Pumpe Industrial Park in Saxony, Germany; (c) completion of the preliminary feasibility study for the construction of a 10,000tpa battery materials plant; (d) a definitive feasibility study for the construction of a battery materials plant; and (e) for working capital purposes.

Q1FY22 Financial and Operational Highlights:

• During the quarter ended 30 September 2021, the company appointed Martin Stein as its Chief Financial Officer, effective from 1 November 2021.
• The company discovered a halloysite at its Kerrigan kaolin deposit in Western Australia, which was observed during the recent processing of samples from its 2020 air-core drilling campaign.
• The company closed the quarter with cash and cash equivalents of $3.8 million as compared to $6.72 million as on 30 June 2021.

Digging into FY21 Financials:

• During FY21, the company recorded total revenue of $8.05 million as compared to $0.93 million in FY20. FY21 revenue includes gains of ~7.9 million from the sale of a 25% stake in Altech Industries Germany GmbH.
• ATC posted a net profit after tax of $2.32 million as compared to a loss of ~$3.51 million in FY20, which leads to the improvement in loss per share to $0.002 against -$0.004 in FY20.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Business Developments:

• As announced on 20 December 2021, the company’s German Battery Materials Coating Plant project has been approved with green status by the independent Centre of International Climate and Environmental Research (CICERO).
• ATC’s Automic Perth office has been relocated to Level 5 191 ST GEORGES TERRACE PERTH WA 6000, which became effective from 20 December 2021.

Top 10 Shareholders: The top 10 shareholders together form around 34.98% 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 11.92% and 6.67%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics: ATC recorded a current ratio of 10.16x in FY21 as compared to the industry median of 1.80x. In addition, the cash cycle for FY21 improved to 450.3 days in FY21 against 2,866.2 days in FY20.

Liquidity Profile (Source: Analysis by Kalkine Group)

Key Risks:

• Price Risk: The company’s operational and financial performance could be impacted by the adverse movement in commodity prices globally.
• Climate Risk: ATC's business could be affected by the extreme change in climate, which could temporarily suspend its operations.
• Regulatory Risk: The company is exposed to a more complex regulatory environment; any failure in the same could lead the business to fines, penalties, etc.

Outlook: The company is optimistic about the opportunity from the development of its nano-coating technology for graphite and silicon particles. This is likely to be supported by the move undertaken by lithium-ion battery producers for enhancing battery anode performance and rising battery storage capacity. ATC is likely to be benefited from the expected growth in annual demand, which would be mainly backed by the rapidly expanding lithium-ion battery and LED industries. In addition, there is no substitute currently available for HPA for the manufacture of synthetic sapphire, which might support the company’s top line going forward.

Technical Commentary: ATC stock price broke the downward sloping trend line by upside in November 2021 on a monthly chart and the stock hit new 52-weeks high level of AUD 0.150. Prices have now taken sharp downside correction from the higher levels and the prices are now taking support of its old downward sloping trend line. RSI (14-period) is hovering at ~57 level that indicates stock is still trading in a bullish momentum. Immediate support levels are AUD 0.098 and AUD 0.082 while immediate resistance levels are AUD 0.125 and AUD 0.145.

Stock Recommendation: The company believes that the successful construction and operation of its proposed HPA plant might place the company as the world’s leading single producer of HPA. The stock of ATC has been corrected by 2.27% in the past one months. In addition, the stock is trading at a P/BV multiple of 1.6x as compared to the industry median (Basic Materials) of 2.4x on a TTM basis. Thus, it seems that the stock is undervalued at the current trading levels. Considering the valuation on a TTM basis, recent capital raising, decent liquidity position, positive market sentiments, optimistic outlook, current trading levels, technical factors mentioned above, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $0.105 as on 24 December 2021.

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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