KUCHING: Press Metal Bhd’s (Press Metal) has entered into a final asset settlement agreement with its China partners thus ending its Hubei smelter losses in a bid to enhance the group’s profitability in the future.
In a statement to Bursa Malaysia, Press Metal along with its 90 per cent-owned subsidiary, Hubei Press Metal Huasheng Aluminium & Electric Co Ltd (PMH) has entered into a final asset settlement agreement with Hubei Hashing Aluminium and Electric Co Ltd (HHAE) and Qianjiang City Qiansheng State-Owned Enterprise (QCQ).
Press Metal explained that the rationale of disposing the PMH assets was to discontinue the loss-making business from the group.
“The one off disposal loss is about RM50 million comprising the assets impairment loss and certain liabilities assumed. Such a disposal is expected to enhance the group’s profitability in the future,” it reiterated.
While PMH will transfer to HHAE all its assets, mainly the aluminium smelter, the power plant and the land occupied by the plants except the subsidiary of PMH – Press Metal International (Hubei) Ltd (PMIH) and the land occupied by PMIH.
“In return, as a consideration, QCQ will transfer its 10 per cent share of equity in PMH to the company,” it highlighted.
According to analyst Ng Sem Guan of RHB Research Institute Sdn Bhd (RHB Research), the Hubei smelter was an important stepping stone for Press Metal, enabling it to gain access to electrolysis technology and the necessary experience in the general operation of a smelting plant.
“We believe its track record in running the smelter was the main consideration behind the Sarawak Government’s approval for the group’s Mukah plant, followed by the Samalaju smelter.
“Meanwhile, the high power tariff scenario in China is likely to worsen,” Ng opined.
As the Hubei smelter recorded a RM12.8 million loss in the first quarter of 2013 (1Q13), the research house noted that disposing it off will certainly end Press Metal’s losses incurred from this upstream unit, while allowing it to enjoy stable, albeit minimal, earnings from the extrusion plant.
Overall, RHB Research maintained its ‘buy’ rating on the stock. Although Press Metal’s RM50 million one-off disposal loss is slightly more than its net realisable value, this has largely been priced in.
Furthermore, it is non-cash in nature. Hence, it does not impact our RM2.77 per share fair value, a 30 per cent discount to our fully-diluted discounted cash flow valuation,” Ng concluded.