NEW SUBSTANTIAL SHAREHOLDER AND BUSINESS GROWTH FOR ANZO AFTER CSTME EXIT

July 12, 2020

CSTME Resource Sdn Bhd may have exited Anzo Holdings Bhd this week as a substantial shareholder to walk away with a handsome profit from its share trading in the company but their business dealings together still stands firm.

 


Last month Anzo secured a RM1.3 billion contract to supply copper scrap over 40 months to a steelmaker in South Korea effective from July 1.


Anzo and its subsidiaries entered into a supply agreement with CSTME, which holds an AP licence and is a major importer and exporter of non-ferrous materials.


CSTME agreed to buy birch/cliff copper scrap or berry/candy copper scrap from Anzo and export the products to the steelmaker in South Korea.


Anzo is expected to supply 60,000 tonnes of copper scrap to CSTME at RM23,000 per tonne over 40 months.


CSTME has been supplying the copper to South Korea effective July 1. As of July 11, it has supplied up to 600 tonnes worth almost RM14 million.

 


We expect Anzo will post a substantial net profit and revenue in the fourth quarter of its financial year ending July 31, 2020.


It was reported that copper prices will stabilize in the coming quarters despite a recent surge in the red metal’s value.


Three-month copper futures on the London Metal Exchange (LME) broke the $6,000-a-ton threshold by the end of June — a far cry from its low of around $4,626.50 at the height of Covid-19 fears in March.


On Monday (July 6), three-month copper on the LME gained 1.2% to trade at around $6,088 a ton, Reuters reported.  

 

The copper rally over the past month from $5,700 a ton to over $6,000 a ton has occurred against a backdrop of flat to falling equity prices and bond yields, leaving copper looking overvalued by $220 to $420 per ton based on these historical relationships.

 

An analyst whom we spoke to said it is indeed normal for a business partner to take up a large stake in a company they have business dealings with and dispose of the shares when they have made enough money from their share trading.
  

CSTME emerged as Anzo's largest shareholder on June 23 with an indirect 11.62% stake, following share acquisitions by its shareholders, Kevin Tan Yean Khim, Albert Tan Yean Heong and Chu Boon Lin. The stock closed 13 sen apiece on June 23. 

 

On July 8, CSTME disposed of its shares in Anzo via the open market. CSTME sold a total of about 115 million shares at 23 sen worth about RM25 million. It sold the shares at 81 per cent higher than its buying price.

We must understand that business and investment are two different things. 

 

While CSTME has cashed out from its shareholding in Anzo, the copper business between both the parties will remain strong until the contract ends in 40 months.

 

We also think that CSTME's exit from Anzo could pave the way for a new substantial to emerge in the company. 
Apart from the RM1.3 billion copper deal, Anzo is also involved in medical glove manufacturing and is acquiring a glove manufacturer in Manjung, Perak for RM55 million.

 

The factory has 9 production lines which can produce 1.2 billion pieces of medical or nitrile gloves. 

 

We understand Anzo has received orders worth about US$200 milion from the United States and Europe to supply over 2 billion pieces of the medical gloves.

 

To meet the orders, Anzo is planning to expand the production lines to 9 or 12. It is forming a joint venture with Main Market-listed Permaju Industries Bhd to refurbish and expand the factory, in order to meet the current orders from the United States and Europe.

 

Both Permaju and Anzo are expected to start the refurbishment and expansion of the factory as soon as possible at a cost of about RM25 million.

 

Anzo is anticipating more orders to come in as demand for medical gloves continue to surge globally and there is a shortage currently.

 

The company's business growth and venture into copper and glove manufacturing has attracted a global fund from China or Hong Kong, as well as a major investor from the United States. 

 

When Anzo was asked by Bursa last month to clarify a news report which mentioned that a foreign investor was eyeing a stake in the company and that it may also inject a new business, Anzo replied that there are some foreign investors who have acquired shares in the company but it did not say who was buying.

 

The stock closed at 20 sen on Friday (July 10), with 91 million shares traded, giving Anzo a market capitalisation of RM174 million.

 

Anzo has traded actively in the past few weeks. The stock's average daily trading volume exceeded 100 million shares for eight days.

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