KUCHING: Press Metal Bhd’s (Press Metal) second quarter of 2014 (2Q14) earnings is set to surge, driven by its Samalaju and Mukah smelters which have reached their optimum level earlier last month.
RHB Research Sdn Bhd (RHB Research) in a research note yesterday outlined that the smelters are set have a combined primary aluminium production at 405,200 tonnes in the financial year 2014 (FY14), and 435,600 tonnes in FY15, which is double of that seen in 2013 at 290,772 tonnes.
“We also see aluminium prices bottoming out on improving fundamentals, due to capacity being curtailed over the past few years, moderate demand growth, and the absence of new smelting capacity outside of China beyond the few that are currently in the final stages of commissioning,” it added.
This, the research firm viewed, might ultimately translate to a supply deficit from 2014 onwards, in the global (ex-China) market.
“With that, we expect Press Metal’s earnings to double in 2Q14 on the back of higher tonnage and our projected all-in price of aluminium of US$2,150 a tonne (for 2Q to 4Q14),” it opined.
Of note, Press Metal started the year off by reporting a core net profit at circa RM28 million of which analysts AmResearch Sdn Bhd (AmResearch) have deemed as commendable given that the company is currently still in the early stages of an earnings upcycle.
“As the ramping-up exercise at its Mukah smelter entered the final phase in 1Q, the loss for this unit (classified as an exceptional item) contracted to RM2.2 million.
“The full commissioning of its Samalaju smelter (except for seven pots) was timely in boosting earnings, but its contribution was capped by the weakening of the all-in price of aluminium at US$1,965 per tonne in 1Q compared with US$2,015 per tonne in the preceding quarter.
”Overall, RHB Research remained positive on Press Metal’s growth, driven by its international standard low-cost smelter thanks to its competitive 25-year power purchase agreement, state-of-the-art smelting technology that is less power-hungry and strategic plant locations.
It maintained maintained its ‘buy’ call on the stock and pegged its fair value at RM5.47 per share, which is at a 20 per cent discount to the research firm’s fully-diluted discounted cash flow.
Similarly, AmResearch commended Press Metal’s investability, which is premised on improved balance sheet, with net gearing to improve to 0.8-fold at end-FY15 forecast (from 1.9-folds last year), higher aluminium prices and premiums, and capacity boost following the production ramp-up at its two plants.
It maintained ‘buy’ on Press Metal with an unchanged fair value of RM4.50 per share, based on a 12-folds price earnings over FY14 forecast core fully diluted earnings per share of 37.5 sen. - the borneo post
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May 31, 2014
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