NO ESTIMATES YET: Photo shows Press Metal Sarawak’s facilities in Mukah. At the time of this announcement, Press Metal noted that none of the pots could be salvaged while its management was unable to estimate the full impact and consequences of the incident but will be closing the smelting plant to facilitate major reconstructions works.
KUCHING: Despite Press Metal Bhd’s (Press Metal) Mukah smelting plant being out of commission due to the blackout last week, analysts believe this will not leave much impact for the group in the long term period, partly mitigated by the ramping up of its Samalaju smelter.
On Monday, Press Metal announced on Bursa Malaysia that its subsidiary, Press Metal Sarawak Sdn Bhd (Press Metal Ssarawak) suffered a sudden shutdown of its primary aluminium production lines at its Mukah smelting plant due to a major power outage that occured at approximately 5.40pm on June 27, 2013 in Sarawak.
The power outage lasted for almost six hours, leading to a significant drop in temperature of the production pots.
“Although power has been restored, Press Metal Sarawak was unable to resume metal production as solidification had taken place in the reduction cells of its potline despite its management and staff working tirelessly around the clock to salvage the pot,” the statement highlighted.
At the time of this announcement, Press Metal noted that none of the pots could be salvaged while its management was unable to estimate the full impact and consequences of the incident but will be closing the smelting plant to facilitate major reconstruction works.
It is noted that Press Metal Sarawak has in place adequate insurance coverage and has initiated engagement with its insurers to ascertain the damage and the cost of the reconstruction works. Consequently, the subsidiary has issued a notice to its affected customers that a force majeure event had occured at its Mukah smelting plant, thereby impacting the supply of aluminium products to such customers.
RHB Research Institute Sdn Bhd analyst Ng Sem Guan in a note on the group noted that in addition to adequate insurance coverage, the ramping up of its Samalaju smelter – which is 2.66 times larger and way more efficient than its Mukah operation – will also partly mitigate any immediate losses.
“While this incident will dent Press Metal’s earnings in the short term, most of the shortfall will be compensated by insurance, which will then lessen the impact on the stock’s long term discounted cash flow (DCF),” Ng explained.
“As we are assuming a six-month halt in Press Metal Sarawak’s operation, which is likely to wipe out its FY13 earnings, we classify its fixed and overhead costs during the period as exceptionals and cut our FY13 core profit forecast by 14.8 per cent,” he added.
“All said, we have decided to be prudent in terms of valuations by raising the discount to our fully diluted conservative DCF from 20 per cent to 30 per cent, from which we derive a new fair value of RM2.90. We urge investors to look beyond this temporary blip and buy into any share price weakness.”
In a separate note, AmResearch Sdn Bhd maintained its earnings forecast and valuations for Press Metal for now, pending further details.
We think Press Metal would be able to claim insurance and could utilise its production in Bintulu to deliver products to the affected customers,” it said. “Nevertheless, we have computed the impact of the closure of its Mukah plant for six months, which would reduce its forecast financial year 2013 (FY13F) net profit to RM36.8 million from RM138.4 million previously.
“Core fully-diluted earnings per share would also fall to 7.2 sen from 22.2 sen previously. However, the actual shortfall could be less as our rough estimates assume status quo for electricity cost during the period. We maintain our fair value of RM3.60 per share as we have not changed our FY14F forecasts, pending further details from management.”