Outlook remains bright for Press Metal

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Phase 2 of its Samalaju smelter has returned to normal operations in late November 2015 after six months of fire damage repair while the Mukah smelter (Phase 1) continues its regular production.

Phase 2 of its Samalaju smelter has returned to normal operations in late November 2015 after six months of fire damage repair while the Mukah smelter (Phase 1) continues its regular production.

KUCHING: Press Metal Bhd’s (Press Metal) near to medium term outlook remains bright, driven by increased capacity from Samalaju Phase 3.

RHB Research Sdn Bhd (RHB Research) noted that Press Metal’s Phase 3 smelter in Samalaju is at the tail-end of ramping up and is expected to be fully commissioned in the next few weeks.

In addition, Phase 2 of its Samalaju smelter has returned to normal operations in late November 2015 after six months of fire damage repair while the Mukah smelter (Phase 1) continues its regular production.

“We expect its aluminium smelting capacity to rise to 760,000 tonnes per annum (tpa) or 1.5 per cent of global primary aluminium production, and sales tonnage to surge 65.7 and 11.8 per cent year-on-year (y-o-y) in the financial year 2016 (FY16) to FY17 respectively.

“Its aluminium smelters in Sarawak represent a successful lowcost model currently in the first quartile of the global production cost curve,” it commented.

Meanwhile, Kenanga Investment Bank Bhd’s research arm (Kenanga Research) said it expect aluminium prices to recover from FY16 onwards when demand is expected to recover, driven by growing usage of aluminium in the auto sector and recovery in oil prices.

On Press Metal’s first quarter of 2016 (1Q16) results, it noted that the group’s core net profit (CNP) of RM52.8 million came in broadly within expectation, as it expected stronger earnings from higher production in upcoming quarters.

Quarter-on-quarter, Kenanga Research said that the group’s 1Q16 CNP was up by 36 per cent, mainly due to higher profit from its smelting and extrusion segment (an increase of 51.3 per cent); hence, CNP margin improved by 1.3 percentage points.

“We believe this could be due to recovery in aluminium prices in 1Q16 (an increase of 1.4 per cent q-o-q),” it commented.

Y-o-y, the research team explained that Press Metal’s 1Q16 revenue increased by 22.2 per cent on the back of higher production from Samalaju Phase 3 plants, which has been commissioning since December 2015.

“However, CNP plunged by 62.4 per cent with CNP margin eroded by 9.2 percentage points, which we gather was due to weaker aluminium prices in 1Q16 (down 15.9 per cent y-o-y),” it said.

Overall, Kenanga Research upgraded Press Metal’s FY17 estimated earnings by 13 per cent, after adjusting for lower US dollar to ringgit exchange rate (down 2.4 per cent) to RM4 per dollar, and higher aluminium price assumption to US$1,700 per metric tonne (an increase of US$100 per metric tonne).

“We opine that aluminium prices have bottomed out in 2015 and likely to rebound beyond current aluminium price of US$1,670 per metric tonne from FY17 onwards, supported by reduction in global surplus gap,” it said.