Company Overview: Altech Chemicals Ltd (ASX: ATC) was listed on ASX on 27th January 2010 and work towards mainly developing high purity alumina (HPA) manufacturing and mineral exploration and supplying ~99.99% (4N) HPA (Aluminum oxide (Al2O3)). It is focused on the sapphire/ light-emitting diode (LED) industry and the lithium-ion battery industry.

ATC Details

Hopeful Future with Budding HPA Demand: HPA is a high-value, high-margin and high demanded product that is used as a critical ingredient for synthetic sapphire’s production, which is then used to manufacture LED lights. HPA is also forecasted to be used in Lithium-Ion Battery production in future thus, everything altogether will lead the HPA global market to grow at a compounded annual growth rate (CAGR) of ~30% from 2018-2028 and leaving ATC in a firm belief of being the world’s leading producer with its Malaysia and Germany HPA Plants.

HPA Global Market Growth (Source: Analysis by Kalkine Group)

Germany Pilot Update:  On 20^th January 2022, its 75% owned German subsidiary - Altech Industries Germany GmbJ (AIG), exercised the option to buy out a ~14hectare industrial site at Schwarze Pumpe Industrial Park for the proposed 10,000tpa HPA Battery Materials Coating Pilot Plant. A total of ~$2.2 million and ~$8.1 million was raised through the Share Purchase Plan (SPP) and share placement during the second quarter for the project’s proceedings. The February month was all fancy growth for Pilot Plant:

• As the month started with the completion of the design of its German Coating pilot plant – to be installed in Schwarze Pumpe Dock3 facility, which is designed to be produce ~120 kg coated anode material per day equaling ~37,000 per year.
• Mid of the month, Kuttner GmbH & Co. KG – a German engineering company was awarded the contract for engineering, which is expected to commence on an immediate basis.
• The plant was awarded a “Medium Green” rating by Centre of International Climate and Environmental Research (CICERO) and acknowledged for lower CO₂ emissions in between ~19% - ~52% possible.

Q2FY22 Financial and Operational Highlights:

• During the quarter ended 31^st December 2021, after the significant breakthrough of “cracking the silicon barrier” at its Perth R&D Laboratory, the company marked a major milestone by launching and registering its product name “Silumina Anodes^TM” for its coated composite silicon/graphite lithium-ion battery anode material. The company has been able to achieve 30% higher energy retention and capacity in Lithium-Ion battery, and its Phase 2&3 will strive to attain beyond 30% now.
• With Nil cash receipts from customers for 2QFY22, the operating cash outflow stood at ~$0.80 million and the cash at the end of 31^st December 2021 was recorded as ~$12.56 million versus ~$3.85 million at the end of 30^th September 2021.

FY21 Top-line & Bottom-line Performance:

• The company’s total revenue for FY21 was ~$8.06 million, including the gains from the sale of a 25% stake in Altech Industries Germany GmbH amounting ~$7.94 million versus ~$0.93 million in FY20.
• ATC turnaround its net losses of ~$3.52 million in FY20 to net profits after tax of ~$2.33 million, which made its EPS (Earning per Share) to $0.002 per share.

Top 10 Shareholders: The top 10 shareholders together form around 34.34% 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 11.70% and 6.54%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics: ATC recorded a steep rise in current ratio of 10.16x in FY21 versus 0.14x in FY20. In addition, the cash balance for FY21 improved to ~$6.73 million in FY21 as against ~$0.83 million in FY20.

Liquidity Profile (Source: Analysis by Kalkine Group)

Key Risks:

• Commodity Price Fluctuations: Considering the global fluctuations in commodity prices, the company’s operational and financial performance could be impacted.
• Climate Risk: Having its business into mining, adverse climate conditions make ATC susceptible to the temporary suspension and halt in the projects and 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: HPA product is a high-value, highly demanded and high margin product and its expected demand will increase at a CAGR of ~30% from 2018-2028 to 272,000 tonnes in 2028, driven by lithium-ion battery manufacturers and worldwide LEDs adoption. With its Pilot project in Germany, ATC will be able to manufacture ~120kg per day, put ATC in the sweet spot and benefit. 

ATC seems quite positive and is well on track in going beyond ~30% in the capacity retention of lithium-ion battery in Phase 2&3. As per its cash flow modeling, its HPA project is expected to show a pre-tax NPV (Net Present Value) of ~US$505.6 million at a discount rate of ~7.5% and an annual average net free cash flow of ~US$76 million at full production.

Technical Commentary: On a weekly chart, ATC stock prices are sustaining above the horizontal trendline support and taking support of the same. Moreover, prices are trading above the trend-following indicators 21-period SMA and 50-period SMA, which may act as a support zone. The momentum oscillator RSI (14-period) is placed at ~53.45, indicating bullish momentum. The immediate support levels are AUD 0.090 and AUD 0.070, while immediate resistance levels are AUD 0.125 and AUD 0.145.

Stock Recommendation: With the construction and operations of ~4,500tpa HPA plant in Johor, Malaysia and ~10,000tpa HPA plant in Germany, ATC aims to be the world’s leading single producer of HPA. The stock of ATC has given a positive return of ~97.11% and corrected by ~2.38% in the past six months and one month, respectively. Its current market price is trading near the average of its 52-week low and 52-week high of ~$0.041 to ~$0.150. In addition, the stock is trading at a P/BV multiple of 1.6x as compared to the industry median (Metals and Mining) of 2.6x on a TTM basis. Thus, it seems that the stock is undervalued at the current trading levels. Considering the indicative valuation on a TTM basis, exciting updates on Germany’s HPA pilot plant, capital raising, virtual debt-free status, decent liquidity position, rising lithium prices and its expected exponential demand in future, current trading levels on technical analysis grounds, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current price of $0.100, as on 11:30 AM (GMT+10), Sydney, Eastern Australia as of 18^th February 2022.

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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