Press Metal - Stepping up to the plate BUY

Stock Name: PMETAL
Company Name: PRESS METAL BHD

Research House: AMMB

Price Call: BUY

Target Price: 2.63

- With greater conviction, we maintain our BUY call on PressMetal with an unchanged fair value of RM2.63/share (target PE: 13x). We hosteda luncheon for Press Metal, and came away from the meeting feeling moreconvinced about the group's rising prospects as an integrated producer  of aluminium products. 

- We draw comfort from the fact that the roll-out of Phase2A of its new aluminium smelter in Samalaju, Sarawak is still on track to goonline by end-3QFY12, followed by Phase 2B (end-2Q13). When fully completed,this should triple the group's smelting capacity to 360,000 tonnes.

- While there have been several proposals for new aluminiumsmelters in Sarawak and Indonesia, Press Metal already has a head-start via:-(i) the long-term supply of power from Sarawak Energy Bhd (~680MW); and (ii)while Phase 2 is due to be completed by mid-2013.

- This puts the group in a sweet spot to tap into rising aluminiumdemand ' as it has one of only two smelters operating within the ASEAN regionfor a combined capacity of ~580,000 tonnes. This compares with a base demand of~5 million tonnes for ASEAN and other keyAsian countries (Japan, Taiwan,Korea).

- To keep up with growing demand, the group is targeting to sell100% of its aluminium ingots/billets produced at its Samalaju plant comparedwith 70% for Mukah, which is almost running at full capacity now.Conservatively, we also expect its manufacturing EBIT margin to improve to 9.6%in FY12F from ~8.4% in FY11.            

 

- As for the balance of funding needs under Phase 2 (~RM1bil),a few options are being considered: (i)  Newdebt; (ii) Forward sales to trading houses/financial institutions; and (iii)Conversion of warrants.

- We do not discount the possibility of seeing renewed interestfrom strategic investors when Phase 2 kicks off. Notably, Japan's Sumitomo hasthe right of first refusal to take up a 20% stake in Phase 2, after having asimilar stake in Phase 1. 

- We project Press Metal's core earnings at RM112mil  for FY12F, rising to RM170mil-RM217mil forFY12F-14F. This is backed by the staggered commissioning of Phase 2A and 2B.The stock offers attractive PE valuations of 6x-10x on FD FY12-14F EPS vs EPSCAGR of 23%.

- Management sees minimal impact from the country's recentlyrevised minimum wage policy of RM700, as its salary scale is already above thethreshold. Wage cost accounts for < 10% of the group's operating cost.

Source: AmeSecurities 

Press Metal - Phase 2 swinging into motion

Stock Name: PMETAL
Company Name: PRESS METAL BHD

Research House: AMMB

Price Call: BUY

Target Price: 2.63

Maintain BUY on Press Metal on a lower fair value of RM2.63/sharebased on an unchanged target PE of 13x, factoring a more conservative pricingassumption on an evolving global macro situation. But, we remain bullish with Press Metal's transformational growth prospects as the largest integrated aluminium producer in the ASEAN region with an expanded capacity of 360,000.

Our positive outlook is largely driven by: (i) Press Metal'sstatus as the larger of only two existing aluminium smelters serving thegrowing ASEAN market; (ii) The group remains the only active direct play on theroll-out of Sarawak's Bakun dam, widely viewed as among the lowest-costhydro-plants in the region; (iii) The long-term supply of power from Bakunenhances its cost competitiveness in weathering any protracted weaknesses inthe global aluminium market.

Core earnings rose 46% YoY, boosted by a strong 4QFY11 (+34%QoQ) on a marked improvement in the output at its Mukah Smelter (utilization:~90%) with maiden power supply from Bakun in October that offset a weakening inthe global aluminium industry.  

Phase 2 of Press Metal's plant expansion in Samalaju is stillon track to complete by end-3Q12. It is mulling a few options to fund thebalance of funding requirements for Phase 2 (~RM500mil-RM1bil: (i) New debt;and (ii) Forward sales to trading houses/financial institutions.

As supply of power from Bakun to its existing 120,000-tonneMukah plant had finally arrived last October, Press Metal has sinceaggressively ramped-up its capacity to ~90% from 50%-60% prior to that.Accounting for half of sales, the group has successfully penetrated the keyAsian markets such as Japan, Taiwan and South Korea. While aluminium pricesremain tepid near-term, prospects should pick-up from 2QFY12 onwards on (i)Rising demand in Asia; (ii) Global production cut-backs; and (iii) Re-stockingactivities post a weak 4Q11-period.

Notably, the immediate focus of Press Metal is on import substitutionwithin a fast-growing ASEAN market ' with the entire Phase 2 of its expansionprogram (240,000 tonnes) scheduled to be in full-flow by end-2013. Indeed, itscompletion should prod renewed interest from strategic investors, includingJapan's Sumitomo that already has a 20% stake in its Mukah plant.   

The stock offers attractive forward PE valuations of 6x-9x onFD FY12-14F EPS vs EPS CAGR of 23%. Near-term event-driven catalysts would be:(i) Successful completion of its new smelter by end-3QFY11; and (ii)crystallization of a formal PPA with SEB. 

Source: AmeSecurities

CIMB Research has technical buy on Press Metal

Stock Name: PMETAL
Company Name: PRESS METAL BHD

Research House: CIMB

Price Call: BUY

Target Price: 2.28

KUALA LUMPUR: CIMB Equities Research has a technical Buy on Press Metal at RM2.28, at which it is trading at a price-to-book value of 1.2 times.

It said on Thursday, July 21 Press Metal could be consolidating within a triangle pattern with the current downleg as the terminal move to conclude this consolidation pattern.

'If this is the case, the prices could soon embark on a strong rally. Indicators are showing signs of weakness, which is in line with the final leg lower.

'We think that the stock is likely well supported above its 200-day SMA at RM2.25,' it said.

CIMB Research said traders could opt to buy on weakness with a stop placed below RM2.16. A breakout above RM2.43 would mean that the rally is indeed taking place, targeting RM2.65 and RM2.80 next.