Target Price: MYR2.77
Stable Despite Temporary Issues
Press Metal posted weaker 2QFY13 earnings of MYR20m, no thanks to the further weakening of aluminium prices while the June power outage dealt a second blow to its short-term earnings. However, we expect repairs at its smelters to be expedited even as the aluminium price shows signs of bottoming out. It is still a BUY, with FV of MYR2.77, implying a 30% discount to our fully-diluted conservative DCF.
• Lower aluminium price dents 2Q results. Press Metal (Press) posted 2Q net profit of MYR20m, -20.6% q-o-q but +4.2% y-o-y. Had we not recently cut our earnings estimates, the 1HFY13 results would be below our and street estimates – largely attributable to a further weakening in the aluminium price to USD1,815/tonne in June. This brought the average aluminium price for the quarter to USD1,836/tonne, which is lower than our original expectation by US30/tonne.
• Gradual recovery from 4QFY13. Meanwhile, its 3Q numbers do not look encouraging, no thanks to the power blackout on 27 June. The aluminium spot price, which averaged only at USD1,770/tonne in July before recovering to above USD1,800/tonne in August, was the second blow to earnings. After stripping off the fixed overhead cost and incidental cost incurred at its Mukah plant despite operations being halted, we expect Press to record core earnings of MYR10m in 3QFY13. The Samalaju smelter is expected to stabilise from October onwards while some of the pots in Mukah may be back in operation later this year. With these, coupled with the expected recovery in aluminium prices, we expect Press to begin seeing signs of recovery from 4QFY13.
• Maintain BUY. We urge investors to look beyond this temporary hiccup and buy into any share price weakness. Most of its repair costs will be covered by insurance. Its record in fast-tracking the installation of greenfield smelter plants in Sarawak gives us hope that its repair and reconstruction efforts can be completed by end-2013. Since our last earnings revision already accounted for this latest development, we make no changes to our estimates. Reiterate BUY, with MYR2.77 FV, derived from 30% discount to our fully-diluted DCF. The FV also implies an undemanding 4.9x P/E and 0.9x P/BV, based on FY14 estimates.
Publish date: 30/08/13