Press Metal sells off non-profitable aluminium smelting plant in China

Press Metal Bhd, which owns aluminium smelting plants in Mukah and Bintulu, is selling its loss-making facility in China.

Its 90%-owned unit Hubei Press Metal Huasheng Aluminium and Electric Co Ltd, had entered into a final asset settlement agreement with Hubei Hashing Aluminium and Electric Co Ltd (HHAE) and Qianjiang City Qiansheng State-owned Enterprise (QCQ).

Under the deal, Hubei Press Metal will dispose of all its assets to HHAE, except its wholly-owned subsidiary Press Metal International (Hubei) Ltd (PMIH) and the leasehold land occupied by PMIH and certain liabilities, Press Metal said in a filing with Bursa Malaysia.

The assets to be transferred to HHAE include the aluminium smelter and power plant and the land occupied by them.

PMIH is principally engaged in the downstream aluminium extrusion products, and is located adjacent to Hubei Press Metal’s smelting plant.

In line with the disposal, QCQ will transfer its 10% share of equity in Hubei Press Metal to Press Metal, making Hubei Press Metal a wholly-owned subsidiary of the latter.

Hubei Press Metal acquired the aluminium smelting plant as well as its related assets and certain liabilities from HHAE in 2007. The company was principally involved in producing upstream aluminium products, namely aluminium ingots and billets.

“Throughout the years, Hubei Press Metal has significantly transferred the technical know-how and support to the group’s new smelting plants in Mukah and Samalaju (Bintulu) which commenced operations in 2009 and 2012 respectively,” Press Metal said.

On the rationale of the divestiture, the company said it was to discontinue the loss-making business. The one-off disposal loss is about RM50mil, comprising the assets impairment loss and certain liabilities assumed.

“The disposal will not have any material effect on the earnings per share and net assets per share of the company for the financial year ending Dec 31, 2013, in view of the savings arising from discontinuing the loss-making business from the group. Such disposal is expected to enhance the group’s profitability in the future,” it added.

Commenting on this, RHB Research said the move would certainly end Press Metal’s losses from this upstream unit while allowing it to enjoy stable, albeit minimal, earnings from the aluminium extrusion plant.

The research house said the facility was an important stepping stone for Press Metal, enabling it to gain access to electrolysis technology and the necessary experience in the general operation of a smelting plant.

“We believe its track record in running the smelter was the main consideration behind the state government’s approval for the group’s Mukah plant, followed by the one in Samalaju,” said RHB Research, which is maintaining its “Buy” call on Press Metal with a fair value of RM2.77.

Press Metal closed at RM2.10 on Friday.

At the moment, the company is carrying out restoration works for its Mukah smelter, which suffered damage due to the shutdown caused by the June 27 statewide power outage.

It hopes to resume the plant’s production before end of this year.