Alexium International Group Limited

Strategic-Collaboration to Aid Business Prospect:Alexium International Group Limited (ASX: AJX) is engaged in the development and licensing of Reactive Surface Technology and Fire-Retardant Nylons. On 10 December 2019, the company dispatched Prospectus, together with personalised Entitlement and Acceptance Forms to shareholders eligible to participate in the Entitlement Offer announced to the ASX on 27 November 2019. The Entitlement Offer is scheduled to close on 16 December 2019.

FY19 Operational Highlights for the period ended 30 June 2019: Revenue for theperiod stood at US$ 5.059 million as compared to US$11.91 million in the previous financial year on account of the shift in focus on commercializing speciality products with substantial profit margins and moving away from low margin revenue streams. The business reported gross profit at US$1.605 million as compared to US$ 2.354 million in FY18. Gross margin for the period stood at 32% as compared to 20% during FY18 due to the shift of focus on an improved business model. The company reported a slightly lower operating expenses from US$6.805 million in FY18 to US$6.408 million in FY19, aided by the implementation of refined controls and processes. During FY19, the company evaluated supplier contracts and service agreements to ensure proper stewardship and expenditure control. The second half of FY19 witnessed the significant improvement of sales, including 2/3 of total cash receipts for the year. During the year, the company increased its market penetration to 35% in textile applications to mattresses. The year also saw a launch Alexicool FM, used for foam applications. During July 2019, AJX signed a supply agreement with Pegasus Home Fashions to assist the customers to access the products with enhanced cooling properties as thermal regulation becomes an important requirement for consumers. The company confirmed supply agreement with a multi-billion-dollar major North American mattress brand, wherein Alexicool® products are the phase change materials (PCMs) used in its mattresses.


FY19 Income Statement (Source: Company Reports)

Outlook:The company will focus on the growth strategy by collaborating with Pine Belt Processing, supplier to US Military. AJX estimates its total addressable market at US$90 million per annum. The development work is expected to be completed in FY20 with plans to roll-out in FY21. The estimated expenditure for the expansion comes in at US$10 million per month. For the phase 2 project, AJX believes that the estimated capital would be US$45 million per annum. For ALEXIFLAM® NF products, the company is targeting a market of ~US$110 million per annum. Going forward, the growth of the mattress industry and expansion in the range of products using cooling chemistries are likely to act as an additional revenue growth driver. Cash and working capital management in the coming quarters remain one of the top priorities for the company.

Stock Recommendation: The stock is quoting at $0.065 with a market capitalization of ~$22.24 million. The stock is quoting at the lower band of its 52-week trading range of $0.062 to $0.185. The stock has generated a negative return of 51.83% and 43.81% in the last three-months and six-months, respectively. The company is well-positioned for decent growth in the future, driven by the proper execution of the strategies and leveraging strategic partnerships. Total addressable market for ALEXIFLAM® NF stands at US$300 million. Considering the potential business prospects,aforesaid facts, price movement in the recent months, current trading levels, proper execution of the cost-saving strategies, strategic partnership, etc., we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.065, up 1.562% as on 10 December 2019.

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