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PA Resources on expansion drive

PA Resources on expansion drive

29 May 2021

Major solar panel maker has big plans in motion

In the past three years, low-profile aluminium extruder PA Resources Bhd has quietly leapt back into profitability from a decade of losses, ramped up its production by three-fold and emerged as a supplier to one of the world’s largest solar panel makers.

Moving forward, against the backdrop of a growing demand for aluminium products globally, the Main Market-listed company has put in place several major plans to capture a bigger market presence in the aluminium business.

In his first exclusive media interview after being appointed as PA Resources’ non-executive chairman, Tan Sri Chan Kong Choy tells Starbizweek about the plan to further increase the company’s production capacity, grow its client base, automate its operations and position PA Resources as a company with strong research and development capabilities.

The former Transport Minister also envisions PA Resources as a high-quality yet cost-effective supplier for the aluminium extrusion industry, aiming to benefit from the robustly-growing renewable energy (RE) demand globally.

Aluminium extrusion refers to a process by which aluminium alloy material is forced through a die to be shaped according to a specific cross-sectional profile.

“The recently signed, approximately Rm800mil contract from Nasdaq-listed First Solar Inc to supply solar panel frames is a sign of confidence in our product quality and our ability to supply without interruption.

“We would like to thank First Solar for having the faith in us,” he says.

Recently, PA Resources announced that its wholly-owned subsidiary P A Extrusion (M) Sdn Bhd had received renewal for its solar panel frame supply contract with First Solar for the next two years. The earlier contract was received in 2018, valued at Rm600mil.

At approximately Rm800mil, this would translate into Rm400mil in revenue on average for PA Resources annually over the next two years. In comparison, the company recorded a total revenue of Rm202.2mil in the financial year ended June 30, 2020 (FY20).

“We are very optimistic on the potential of the solar panel industry and want to be a part of it. Governments globally, including Malaysia, are encouraging RE adoption and this would surely further boost the demand for solar panels,” he says.

Over the last five years since the signing of the Paris Agreement, global demand for RE sources – especially solar power – has shown robust growth as countries try to cut their carbon emissions.

In Malaysia, through the Malaysian Investment Development Authority, the government is offering several tax incentives to

encourage industry players to adopt green technology. Such measures would help to further boost the demand for RE nationwide over the coming years.

“Coupled with the growing demand for aluminium products from other industries, we are confident that PA Resources would be able to continue its strong earnings growth as seen in the last two years,” Chan says.

Chan was appointed as the chairman on Dec 17, 2020. This followed the emergence of Chan as the top shareholder of PA Resources Bhd after having acquired a 10.18% stake via his wholly-owned vehicle, Interlink Matrix (M) Sdn Bhd.

Currently, he has a 0.04% direct interest and a 9.69% indirect interest in the aluminium extruder.

“Currently, we are semi-automated. With greater automation, our production level will also go up by at least 20%.” Tan Sri Chan Kong Choy

Growth momentum to continue

Chan expressed his confidence that the management of PA Resources lies in good hands.

The day-to-day operations of the company is under the purview of its managing director (MD) Datuk Seri Lau Kuan Kam, who was appointed to the post in May 2017.

Lau was instrumental in turning around the company, which was previously operationally loss-making.

Upon appointment as the MD, he undertook several drastic changes in PA Resources from cost-cutting measures, internal restructuring and investing heavily into new machinery.

It was under him that PA Resources’ production capacity rose to over 2,000 tonnes per month currently, from just 600 tonnes in 2017.

The company’s margin has also improved significantly. From a negative gross profit margin of 2% in FY17, it had turned positive to 8% by FY20.

In FY20, net profit increased by 115% yearon-year to Rm9.12mil, after turning around in the previous year with a net profit of Rm4.25mil.

To grow further and meet clients’ increasing demand, Chan says PA Resources will embrace greater automation in its Ijok-based factory.

“Currently, we are semi-automated. With greater automation, our production level will also go up by at least 20%,” he says.

Currently, the factory, which has 10 production lines for extrusion, is running at 90% capacity.

“We plan to add additional lines in 2021,” he adds.

With the increased automation and additional production lines, Chan expects PA Resources to be able to produce additional 20% or more of extruded aluminium products.

However, he agrees that the current size of the factory, which sits on a 10-acre plot of land, and the electricity capacity of the factory that is nearing maximum usage, have constrained the company from expanding further.

Hence, the company is considering several options that include land acquisition for the construction of a new factory.

“Moving forward, we plan to increase our capital expenditure (capex) compared to the past several years as we see huge potential in the industry.

“We are currently in the midst of ironing out our capex plans,” says Chan, although he stopped short of mentioning how much PA Resources will be spending for capex in FY21 onwards.

In FY20, based on its filing with Bursa Malaysia, PA Resources spent a total of Rm5.33mil in capex, of which over 97% was focused on the extrusion and fabrication segment. The remaining capex went into other segments.

Chan also said that PA Resources seeks to expand its product offerings by offering more aluminium-based products within the next two years. The production capacity would be ramped up further to accommodate the expansion.

Chan was asked how PA Resources would be affected by rising aluminium prices, considering that aluminium ingots are the company’s most common raw material.

After a drastic drop in the first three months of 2020 to slightly over US$1,400 (RM5,786) per tonne, aluminium prices had since recovered sharply and breached the US$2,000 (Rm8,267)-mark by December last year.

While prices have slightly dipped in January 2021, they have picked up once again and have continued to range above US$2,400 (RM9,920) per tonne since mid-april.

According to Chan, the impact of aluminium prices are minimal on the company’s operations.

“We hedge the risk of raw material price fluctuations as we sign contracts with our clients based on agreed aluminium prices.

“Not only that, our inventories move in and out quite fast in about a month’s time on average. So, we are not affected much by the price fluctuations,” he says.

Looking ahead, Chan expects PA Resources to register a significantly stronger performance in the current FY21.

“As we increase our production levels, our financial performance should increase in tandem,” Chan says.

In the first nine months of FY21, PA Resources’ revenue has already exceeded the full-year turnover seen in FY20. The ninemonth revenue rose by 39% y-o-y to Rm207.37mil.

Meanwhile, its net profit for the same period increased more than two-fold to RM17.16mil from RM6.12mil.

Source: The Star