Press Metal continues to enjoy competitive advantage due to its lower power cost compared to peers.
KUCHING: Press Metal Bhd’s (Press Metal) future earnings are expected to remain intact despite the recent minor insurance claim setback.
In its filing to Bursa Malaysia on Monday, Press Metal had highlighted that for the financial year ended December 31, 2013 (FY13), the group has provided an estimated RM90 million for both operating losses and assets written off.
According to AmResearch Sdn Bhd (AmResearch), an operating loss of RM20.3 million was already recognised in the third quarter (3Q) for fixed operating charges and finance cost incurred for the Mukah plant, resulting in a net loss of RM1.6 million in the quarter.
“While we expect some losses for its 4QFY13 result, this will be one-off in nature. As such, we expect FY13F core net profit to remain intact at RM97.8 million,” the research house projected.
In addition, the Mukah plant is expected to reach full capacity (120,000 tonnes per annum) in early March while its Samalaju is already at 100 per cent utilisation rate of 320,000 tonnes per annum.
Meanwhile, as aluminium prices have been coming down 18 per cent year on year to US$1,703 per tonne currently, the research house noted that global premiums have been increasing from US$200 per tonne to as high as US$500 per tonne. As such, average selling prices were not much changed on an absolute basis.
All in all, Press Metal continues to enjoy competitive advantage due to its lower power cost compared to peers.
In conclusion, AmResearch reiterated that despite the minor setback on insurance claim, its thesis on Press Metal remains intact with future earnings driven by full production at both Mukah and Samalaju plants and higher premiums due to lack of deliveries in the physical aluminium market.
It is also driven by Sumitomo’s 20 per cent stake in Bintulu plant that comes with off-take agreement and the reduction of net gearing to 1.2-fold in FY14F from 1.5-fold in end-August 2013.
“Further upside stems from a positive settlement/agreement for the insurance claims,” the research house added.
As such, AmResearch maintained ‘buy’ on Press Metal with a tweaked fair value of RM3.04 per share from RM3.07 per share previously based on a 12-fold price earnings (PE) of FY1F core fixed deposit (FD) earnings per share (EPS) of 25.3sen.