KUCHING: Press Metal Bhd (Press Metal) is on route to a better year ahead on the back of its Mukah and Samalaju smelters expected to be fully operational next month.
The group is also set to enter a positive phase driven by higher premium and Sumitomo Corp’s (Sumitomo) 20 per cent stake in the Bintulu plant that comes with an off-take agreement.
According to analyst Ng Sem Guan of RHB Research Sdn Bhd (RHB Research), despite the various hiccups faced by Press Metal during the financial year 2013 (FY13), the group still reported a commendable full year results.
The analyst pointed out that positive news flow have been picking up since the group disposed its loss-making Hubei smelter in September 2013 via an asset swap, which also saw it acquiring a profitable extrusion unit. The Samalaju smelter was fully-commissioned in October 2013, while the Mukah smelter resumed stage operations on November 18, Ng added.
“We are also excited about its recent landmark RM444 million deal with Sumitomo, which will see the latter own a 20 per cent stake in the Samalaju smelter,” he said.
Aside from that, Ng also viewed that despite further pressure by London Metal Exchange’s (LME) new warehouse policy on an already-distressed aluminium prices, Press Metal could possibly be able to withstand sharp drop in prices better than its higher-cost peers.
Currently, the market is expected to see aluminium prices at a record premium of above US$350 per tonne in the second quarter of 2014 (2Q14) compared with US$255 per tonne in 1Q14, to partly compensate for the lower LME prices, which averaged at US$1,711 year-to-date, the analyst explained.
Positive on Press Metal’s outlook this year thanks to its strategic asset swap, the respective commissioning and re-commissioning of its Samalaju and Mukah smelters, as well as its landmark deal with Sumitomo, RHB Research maintained a ‘buy’ call on the stock, with a RM3.79 per share fair value.
To note, Press Metal posted FY13 core profit of RM128.3 million and a net profit of RM15.3 million for FY13 forecast, compared to RM183.9 million a year earlier.
According to AmResearch Sdn Bhd (AmResearch), the lower earnings were due mainly to RM40.5 million worth of assets written off for damaged pots at its Mukah plant caused by the statewide power outage last July.
In addition, it explained that the group also saw an exception loss of RM48.1 million (recognised in 3QFY13) for the disposal of fixed assets following its exit of the Chinese smelter business.
Revenue grew by 31 per cent to RM3.1 billion from RM2.3 million a year earlier while its top line growth was mainly contributed by its Samalaju plant (320,000 tonnes per annum) which commenced operations last year.
With that, the research firm noted that this had helped to mitigate the loss of income (amounting to RM51.3 million) arising from the shutdown of the Mukah plant for a few months.
“We do next expect any further provisions for the Mukah plant (120,000 tonnes per annum) for this year.
“In fact, we understand that the Mukah plant is expected to run at full utilisation rate (currently at 80 per cent) by next month while its Samalaju plant is already running at full steam.”
It further noted that further upside stems from a positive settlement/agreement for the insurance claims which the group is expecting from the suit it filed against the insurer on claims arising from the power outage in Mukah.
AmResearch maintained a ‘buy’ stance on Press Metal with a fair value of RM3.04 per share, based on a 12-fold price earnings of FY14 forecast core FD earnings per share of 25.6 sen.