This article first appeared in The Edge Malaysia Weekly, on March 14 - 18, 2016.

Mention A-Rank Bhd and LB Aluminium Bhd in the same sentence and many may not be aware of the link between the two companies. However, the two aluminium players now have a common single largest shareholder in Datuk Leow Chong Howa, a low-profile local businessman.

Last month, Leow, 57, the executive chairman and major shareholder of LB Aluminium, surfaced as a substantial shareholder of A-Rank with a 27.74% stake. He holds a 30.17% direct stake in LB Aluminium, while his family members own another 15% in the aluminium extrusion specialist.

Leow, who was appointed to the board in 1985, had been the managing director of LB Aluminium since its incorporation, before taking over as executive chairman.

A-Rank’s official website states that it is the country’s largest manufacturer and supplier of aluminium billets, and one of the leading suppliers of aluminium extrusion billets in Asia.

LB Aluminium, meanwhile, declares that it is the largest supplier of aluminium extrusions in Malaysia and among the largest manufacturers in Southeast Asia.

Considering that A-Rank and LB Aluminium claim to be two of the largest regional players in their respective segments, it will be interesting to see what plans Leow has — and more importantly, the synergy that can be achieved — for the two companies.

Aluminium extrusion is a process to transform aluminium alloy into objects with a definitive cross-sectional profile for a wide range of uses, including manufacturing needs.

Aluminium extrusions are commonly used in window frames, while aluminium platforms and angles are widely used in making conveyor parts.

Steel industry experts tell The Edge that LB Aluminium may source aluminium billets from A-Rank for its production of aluminium extrusions.

“I would imagine that A-Rank’s billets would be used by LB Aluminium to produce extrusions, so this sounds like an example of vertical integration in the supply chain,” says one industry observer.

A steel company executive says it makes good business sense for Leow to own majority stakes in LB Aluminium and A-Rank as their core businesses complement each other.

“By sourcing the billets from A-Rank, LB Aluminium would be able to enjoy a stable and competitive supply of raw materials, not to mention better pricing. As for A-Rank, becoming an upstream supplier to LB Aluminium means it would gain a steady customer that makes regular orders,” he explains.

A steel analyst says vertical integration gives the downstream company, in this case LB Aluminium, the ability to minimise its supply chain risk.

“Expanding vertically could prevent disruptions in the supply of input materials and reduce threats from suppliers, especially those with greater bargaining power,” he adds.

At press time, both A-Rank and LB Aluminium had yet to respond to queries from The Edge.

To recap, Leow had, on Feb 16, replaced Tan Wan Lay as the single largest shareholder of A-Rank after buying 31.79 million shares or a 26.49% stake from the latter for a total of RM19.07 million.

The transaction was done off market at 60 sen apiece, representing a slight discount of 1.6% to the closing price of 61 sen on that day. The shares were valued at a historical price-earnings ratio of 7 times, and price-to-book value of 0.7 times.

Leow, who purchased the shares via the British Virgin Islands-incorporated City Data Ltd, now owns 33.29 million shares or a 27.74% stake in A-Rank.

According to LB Aluminium’s annual report, Leow is a council member of the Malaysia-China Business Council and a member of the Malaysia-China Chamber of Commerce.

A former council member of the Federation of Malaysian Manufacturers (FMM), he is a member of the Council of Tung Shin Hospital Kuala Lumpur, and sits on the boards of SRJK (C) Kepong and Chong Hwa Independent High School.

Tan, 51, who was appointed to the board in 2005, remains as managing director and substantial shareholder of A-Rank with a 9.68% stake.

Interestingly, Tan used to be a former colleague — or more precisely, a former employee — of Leow at LB Aluminium.

A-Rank’s annual report shows that Tan, who has over 20 years’ experience in the aluminium extrusion industry, joined LB Aluminium in 1986 and rose through the ranks to become senior production manager.

In 1993, he left LB Aluminium to join Press Metal Bhd as a production manager. Four years later, he left Press Metal to set up Formosa Shyen Horng Metal Sdn Bhd, which later became a subsidiary of A-Rank.

It seems like the emergence of Leow in A-Rank is a reunion of sorts with Tan, who left LB Aluminium 23 years ago. It could also be seen as a takeover by Leow of a company set up by his former employee.

LB Aluminium and A-Rank both have their headquarters in Beranang, Selangor.

LB Aluminium has production facilities on a 32-acre site in Beranang as well as a 4-acre site in Kuching. Its existing integrated production facilities feature extrusion presses from Japanese firm UBE Industries Ltd, and have an annual production capacity of 100,000 tonnes. Its facilities include a 4,300-tonne extrusion press that is the largest currently available in Malaysia.

LB Aluminium has an extensive branch network with sales outlets and warehouses in major cities and towns in Malaysia and Singapore. Its export markets include Europe, North America, North and South Asia, Australia, New Zealand and Southeast Asia.

For its financial year ended April 30, 2015, the group posted a turnover of RM454.5 million, and a net profit of RM13.2 million.

Meanwhile, A-Rank, through Formosa, is principally involved in the manufacturing and marketing of aluminium billets, which has been the core focus of the group since its inception.

Formosa has an installed capacity of 120,000 tonnes per annum. Its integrated facilities include seven units of melting furnaces, one unit of hydraulically tilting holding furnace, four units of homogenising furnaces and the Wagstaff “Airslip” billet casting mould system.

In January 2013, A-Rank acquired a 55% stake in HongLee Group (M) Sdn Bhd, which manufactures aluminium and glass fittings.

For its financial year ended July 31, 2015, A-Rank made a net profit of RM10.5 million, on revenue of RM485.9 million. The group exports about 30% of its production to Africa, Europe, South Asia and Southeast Asia.

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