Press Metal made a total impairment of RM62.3 million in FY15 on the loss of machinery as a result of the fire.
KUCHING: Analysts believe Press Metal Bhd (Press Metal) is on track to making a comeback following news of it receiving full claims from its insurer to compensate for losses incurred from last year’s fire incident at its Samalaju smelter.
RHB Research Institute Sdn Bhd (RHB Research) noted that all smelting pots in Press Metal’s Samalaju plant have been running at full capacity since June. This is further aided by aluminium price showing signs of bottoming out, with an upside bias.
“Press Metal told Bursa Malaysia that it has received the final claim of RM45 million from its insurer, MSIG Insurance (Malaysia). The payment partly covered the loss caused by a fire incident at its Samalaju smelter (Phase II) in May 2015, which resulted in unstable power supply that damaged its smelting pots and halted operations. “All in, the company has received a total claim of RM115 million,” it recapped.
Press Metal made a total impairment of RM62.3 million in FY15 on the loss of machinery as a result of the fire. The excess of RM52.7 million is to cover loss of income during the period that the plant underwent repairs.
From this move, RHB Research observed that Press Metal’s management gained in-depth knowledge on how to prepare for and handle the impact of any surprise power disruption after the last state-wide power failure that affected its Mukah smelter (Phase I) in 2013.
“Despite having provided an estimated RM90 million for both operating losses and assets written off, the company has – thus far – not reached an acceptable agreement with its insurers on the claims,” it added.
“We believe a full compensation for the recent fire insurance may provide stronger grounds for the company to reach a settlement for the earlier claim, considering both claims have an almost similar basis.”
The compensation received certainly helps to improve the company’s cash flow although the amount would be classified as an exceptional gain given its non-operational and non-recurring nature.
“Therefore, we make no changes to our earnings estimates. Key risks include further downward pressure on aluminium prices and a sharp weakening of the USD that may hurt its profitability,” it opined, adding that any unforeseen interruption of power supply at its smelting plant could also damage its machineries.
“Press Metal is all set to make a comeback with its Phase II aluminium smelter in Samalaju resuming normal operations since late Nov 2015, while Phase III has been in a full commissioning status since May.
“Together with the positive progress on its insurance claim, we are keeping our BUY recommendation on the stock with a target price of RM5.17 per share.”