Advance SCT - News Article

Published June 22, 2007
Things are in place for Advance SCT
By TEH HOOI LING

ALL the blocks are in place for Advance SCT to reap the benefits as an integrated copper supply chain manager, and many institutional investors have voted with their funds.

Mr Tea: Advance SCT can obtain recycled copper for much less than London Metal Exchange prices

Last August, the group fully acquired Green World - a recycler and trader of stainless steel, copper, brass and aluminium, and electrical and electronic scraps, with operations in Singapore, Indonesia and Malaysia. It acquired a recycling plant in Indonesia early this year, and is exploring opportunities of starting collection centres in China and the Middle East.

On its own, the metal recycling and trading business is profitable. For the six months to Dec 31, 2006, it raked in a gross profit of $15.9 million on a turnover of $261.9 million. It contributed more than half of Advance SCT's net profit of $5.9 million.

But the significance of this operation is to secure second grade copper for the group's smelter in Pulau Indah (near Port Klang) in Malaysia.

Advance SCT acquired an 80 per cent stake in the Malaysian smelter TTM Industries Bhd at the end of last year for $15.5 million. The first furnace commenced production of 3mm and 8mm copper coil in March this year. The second furnace will be fired up in August. Thus far, the progress of the smelter has been faster than anticipated.

The two furnaces will have a combined annual capacity of 60,000 tonnes per year - the full capacity is expected to be reached by 2009.

This smelter can use 100 per cent of scrap copper, and is fuelled by liquefied natural gas - two factors that give it substantial cost advantage over other copper coil producers.

According to founder and chief executive Terence Tea, Advance SCT can obtain recycled copper at US$6,700 per tonne in Malaysia. Those from Indonesia are cheaper by US$50 to US$100 per tonne, after taking into consideration the logistic costs. This compares with the copper price of about US$7,450 per tonne as traded on the London Metal Exchange (LME).

Mr Tea said the first furnace in the Malaysian smelter is being fed 2,500 tonnes per month now - 70 per cent of it from the company's own yard collection. The rest is imported from the Middle East.

By the end of the year, when the second furnace ramps up its production, scrap copper collection from Indonesia will rise to 3,000 tonnes per month, up from the current 1,000. But there's still a need for a 30 per cent import.

Smelter's margin

Here's how the numbers look for the smelter, assuming that it can get the second grade copper at US$350 below the LME price per tonne, and that it can sell at US$250 above LME per MT.
That will give the smelter a margin of US$600 per tonne. Take away processing costs, interest and administrative charges of US$350, that still leave some US$250 per tonne for the bottom-line. For this year, Advance SCT is expecting a production capacity of 24,000 tonnes for its smelter. At a profit of US$250 per tonne, the incremental earnings for the group this year is in the region of US$6 million or $9.5 million.

The production will increase to 54,000 tonnes next year and will reach full capacity of 60,000 tonnes by 2009.

Demand for the copper coil comes from copper cable manufacturers and manufacturers of copper foil which is used by the printed circuit board (PCB) industry. Advance SCT has been shipping its copper coil to Mitsui, Nanya and Chang Chun - main suppliers of copper foil. It has also secured Tai Sin Electric Cable as a new customer.

In addition to the copper smelter, Advance SCT is building a $20 million copper refinery at Tuas. The refinery will add phosphorous to copper to produce copper balls for use by the PCB manufacturers. The refinery is expected to produce 14,400 tonnes in 2008, and 32,400 tonnes in 2009.

Andy Lim, chairman of Advance SCT, said the logistical advantage of Singapore is underestimated by many. Because of that efficiency, there is a strong business case for siting the refinery here.

The estimate is that Advance SCT can sell its copper balls at US$650 above the LME copper cathode price per tonne. If the raw material is copper cathode, the group stands to net US$300 profit per tonne. But according to Mr Tea, the refinery will be able to take up to 30 per cent scrap copper, in which case, there will be fatter margins.

Meanwhile, the group's original business - PCB Testing and finishing services - will continue to plod along and may eventually be divested.

So if everything goes according to plan and prices remain within the expected range, the group is looking at profits of more than $30 million next year. That will give it a forward price earnings ratio of just over seven times.

Mr Lim thinks Advance SCT's business model as an integrated copper supply chain manager is highly scalable. The group is already exploring the possibility of similar set-ups in Indonesia, China, India and the Middle East.

Hitch-free operation of its smelter and refinery and the ability to secure scrap copper at a reasonable price will be critical to Advance SCT living up to its promise.

Advance SCT has already gained the confidence of some smart money. Institutional investors now collectively own about 20 per cent of the group - but all are still below the 5 per cent threshold which requires them to declare their interest.

Business prospects

In addition, four of Singapore's highly successful entrepreneurs - Andy Lim of the Moneyworld Group of Companies, Raffles Education's Chew Hua Seng, Labroy Marine's Tan Boy Tee and KS Energy's founder Tan Kim Seng, through Tembusu Growth Fund - own the remaining 20 per cent of the group's Malaysian smelter.

All seem to believe in the prospects of the business. And undoubtedly, the successful start of operation of the second furnace and the Singapore refinery in the coming months will win it even more converts.