Press Metal - Readying itself for the next phase BUY

- Maintain BUY on Press Metal with an unchanged fair value of RM2.63/share – pegged to a target PE of 13x. Press Metal reported a 1QFY12 net profit of RM23mil against total turnover of RM525mil.

- While only accounting for 20% of our full-year estimates, we deem the results to be in-line with our expectations as:- (i) 1Q is normally a seasonally weaker reporting period; and (ii) 2H should see some maiden contributions from its new aluminium smelter in Samalaju, Sarawak. 

- In fact, we consider Press Metal’s 1QFY12 performance to be more than decent. This is in light of weaker global aluminium prices where some of the Chinese smelters were running at losses. To be sure, benchmark aluminium prices in 1Q12 fell by 13% to US$2,219/tonne. Finance cost increased 55% YoY to RM24.5mil, possibly on drawdown on loans for phase 2 of its expansion.

- Yet, Press Metal managed to chalk up a commendable 5% YoY increase in its bottom line – thanks to the full-ramp up of its Mukah smelter since 4QFY11. As such, manufacturing EBIT margins held steady at ~11% during the quarter (4Q11: 9.1).

- On a QoQ basis, Press Metal’s pre-tax earnings rose 16% YoY – although net profit was some 16% lower due to higher tax and minority interest. 

- The construction of Press Metal’s Samalaju smelter  is nearing its tail-end. After securing some 480MW of power from Sarawak Energy (SEB) under a long-term pact signed in April, we gather that the new facility is on track to be completed by end-September 2012.

- Press Metal has also recently secured another RM350mil worth of syndicated term loan facilities from a local consortium of banks (total: RM750mil) to help part fund Phase 2. 

- When fully completed over two phases by 2013, we project a tripling of Press Metal’s facility to 360,000 tonnes. Phase 2A (120,000 tonnes) is on track to be ready by September.

- Allowing for a six- to nine-month grace period and associated start-up cost, we expect Press Metal to reap the full benefits of Phase 2A in FY13F – where we project a higher net profit of RM170mil against an estimated RM112mil for FY12F (FY11: RM91mil).

- Press Metal is trading at attractive FD FY12F-14F PEs of 5x-9x vs. robust EPS CAGR of 23%. Notably, Japan’s Sumitomo has the right of first refusal to take up a 20% stake in Phase 2, after having a similar stake in Phase 1  

Source: AmeSecurities