30 SEPTEMBER 2014www.thestar.com.my
RHB Research maintains BUY on Press Metal
Edited by : AL CIRCLE
2 min read
RHB Research has maintained its BUY call on Press Metal with a fair value of RM8.30, saing it likes the group for its world-class, low-cost smelter in the first quartile of a global cost curve, thanks to its competitive 25-year power purchase agreement (PPA), state-of-the-art smelting technology and strategic plant locations.
In a note on Monday, RHB said the improved market dynamics were timely as its smelters had returned to optimum production levels.
"As we believe the recent selldown in its share price was not on a fundamental basis, we recommend investors to Buy on weakness. Our RM8.30 FV is derived from a 10% discount to our fully-diluted DCF, implying undemanding 2.4x/2.1x P/BVs and 17.0x/11.9x P/Es on FY14F/15F estimates respectively," it said.
RHB noted that Press Metal's CEO Datuk Paul Koon had given reassurance that it was business as usual and the outlook of the aluminium market remained upbeat.
According to the research house, after Press Metal’s share price plunged from an all-time high of RM7.46 to its low of RM5.32 over the last three trading days, it hosted a conference call for institutional investors to speak directly with Koon on the latest developments in the company and aluminium industry last Friday.
Koon confirmed that he was not aware of any bad news concerning Press Metal’s operations or the aluminium industry as a whole, RHB said.
"While he said that aluminum prices on the London Metal Exchange (LME) may have dipped after the spot price surpassed US$2,100 in August, he deemed the recent correction as healthy.
"The premium paid over the LME cash price hit a record high, as the 4Q14 premium for the Japanese market was recently set at US$420 vs US$255/US$365/US$404 a tonne in 1Q/2Q/3Q respectively.
"Meanwhile, his bullish expectation of the aluminium market, is on the back of: 1) capacity cuts over the past few years, 2) moderate demand growth, and 3) the absence of new smelting capacity outside China beyond the few facilities that are currently being ramped up, is in line with our investment thesis," it noted.
In a note on Monday, RHB said the improved market dynamics were timely as its smelters had returned to optimum production levels.
"As we believe the recent selldown in its share price was not on a fundamental basis, we recommend investors to Buy on weakness. Our RM8.30 FV is derived from a 10% discount to our fully-diluted DCF, implying undemanding 2.4x/2.1x P/BVs and 17.0x/11.9x P/Es on FY14F/15F estimates respectively," it said.
RHB noted that Press Metal's CEO Datuk Paul Koon had given reassurance that it was business as usual and the outlook of the aluminium market remained upbeat.
According to the research house, after Press Metal’s share price plunged from an all-time high of RM7.46 to its low of RM5.32 over the last three trading days, it hosted a conference call for institutional investors to speak directly with Koon on the latest developments in the company and aluminium industry last Friday.
Koon confirmed that he was not aware of any bad news concerning Press Metal’s operations or the aluminium industry as a whole, RHB said.
"While he said that aluminum prices on the London Metal Exchange (LME) may have dipped after the spot price surpassed US$2,100 in August, he deemed the recent correction as healthy.
"The premium paid over the LME cash price hit a record high, as the 4Q14 premium for the Japanese market was recently set at US$420 vs US$255/US$365/US$404 a tonne in 1Q/2Q/3Q respectively.
"Meanwhile, his bullish expectation of the aluminium market, is on the back of: 1) capacity cuts over the past few years, 2) moderate demand growth, and 3) the absence of new smelting capacity outside China beyond the few facilities that are currently being ramped up, is in line with our investment thesis," it noted.
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