RHB Research maintains Buy on Press Metal

RHB Research has maintained its Buy call on Press Metal with a fair value of RM4.11, it said on Monday.

RHB Researh said while both the group’s smelters are now in full production mode, it expects the group earnings to surge 87.7%/29% in FY14/FY15.

It said aluminium prices jumped 10.5% in the last three weeks, particularly after the London Metal Exchange (LME) lost a lawsuit that forced it to shelve its new warehousing policy, which was designed to reduce its deadlocked inventory, which many believe was tied to contango financing.

“While we concur that the event may have boosted market sentiment and resulted in an uptick in aluminium prices, we think this coincides with the improving fundamentals of the aluminium industry.

“After almost a decade of capacity curtailment, the moderate growth in demand may finally translate into a supply deficit in the global ex-China market from 2014. This may suggest that the aluminium industry is hitting bottom,” it said.

It said the improved market dynamics are timely as both of Press Metal’s Samalaju and Mukah smelters are operating at full steam after a ramping-up exercise was completed last month.

“Meanwhile, news flow seems to have improved after the company disposed of its loss-making Hubei smelter while acquiring a profitable extrusion unit via an asset swap in Sept 2013.

“We are also excited about its recent landmark US$140mil deal with Sumitomo Corp, in which the latter took up a 20% stake in Samalaju smelter, which implied a standalone valuation of RM2.3bil for this unit,” it said.

“We estimate that the rights proceeds will reduce its net debt and gearing to RM86mil and 0.3 times from RM188mil and 0.9 times respectively as at Dec 31, 2013,” it noted.