www.thestar.com.my
RHB Research maintains buy on Press Metal, FV RM2.77
Edited by : AL CIRCLE
3 min read
RHB Research is maintaining its Buy call on Press Metal with a fair value of RM2.77, which is a 30% discount to its fully diluted discounted cashflow valuation.
It said on Friday Press Metal’s disposal of its loss-making Hubei smelter did not impact its RM2.77 FV. The FV also implied an undemanding 4.9 times price-to-earnings (P/E) and 0.9 times price-to-book value (P/BV) based on FY14 estimates.
RHB Research said Press Metal’s final asset settlement agreement with its China partners ended its Hubei smelter losses, in exchange for a nominal income stream from its extrusion plant.
“Although the RM50mil one-off loss is slightly more than its net realisable value, it is likely non-cash in nature and largely priced in. Thus, it has no impact to our RM2.77 FV, which is at a 30% discount to our fully-diluted DCF valuation,” it said.
To recap, Press Metal’s 90%-owned Hubei Press Metal Huasheng Aluminium & Electric Co Ltd (PMH) had signed a final asset settlement agreement with Hubei Hashing Aluminium and Electric Co Ltd (HHAE) and Qianjiang City Qiansheng State-Owned Enterprise (QCQ).
Under the agreement, Press Metal would sell its 90% stake in the 88,000 tonne per annum (tpa) smelting plant, together with its 180 megawatt (MW) coal-fired power plant (Hubei smelter), to HHAE in exchange for a 10% stake in PMH.
Press Metal would then own 100% of PMH's remaining asset, a 30,000 tpa aluminium extrusion plant adjacent to the Hubei Smelter.
RHB Research said the Hubei smelter 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 Sarawak Government's approval for the group's Mukah plant, followed by the Samalaju smelter,” it said.
The research house said the high power tariff in China is likely to worsen. As the Hubei smelter recorded a RM12.8mil loss in Q1, 2013.
By disposing of it, RHB Research pointed out the move would certainly end Press Metal’s losses incurred from this upstream unit, while allowing it to enjoy stable, albeit minimal, earnings from the extrusion plant.
“The divestment plan was made known in Q4, 2012, when Press Metal reclassified the smelter as an asset for sale. We removed its outstanding book value (amounting to RM41.7mil) from our valuation since initiating coverage in June.
“Note that its RM50mil one-off disposal loss is slightly more than its net realisable value, although this has largely been priced in. Furthermore it is non-cash in nature,” it said.
It said on Friday Press Metal’s disposal of its loss-making Hubei smelter did not impact its RM2.77 FV. The FV also implied an undemanding 4.9 times price-to-earnings (P/E) and 0.9 times price-to-book value (P/BV) based on FY14 estimates.
RHB Research said Press Metal’s final asset settlement agreement with its China partners ended its Hubei smelter losses, in exchange for a nominal income stream from its extrusion plant.
“Although the RM50mil one-off loss is slightly more than its net realisable value, it is likely non-cash in nature and largely priced in. Thus, it has no impact to our RM2.77 FV, which is at a 30% discount to our fully-diluted DCF valuation,” it said.
To recap, Press Metal’s 90%-owned Hubei Press Metal Huasheng Aluminium & Electric Co Ltd (PMH) had signed a final asset settlement agreement with Hubei Hashing Aluminium and Electric Co Ltd (HHAE) and Qianjiang City Qiansheng State-Owned Enterprise (QCQ).
Under the agreement, Press Metal would sell its 90% stake in the 88,000 tonne per annum (tpa) smelting plant, together with its 180 megawatt (MW) coal-fired power plant (Hubei smelter), to HHAE in exchange for a 10% stake in PMH.
Press Metal would then own 100% of PMH's remaining asset, a 30,000 tpa aluminium extrusion plant adjacent to the Hubei Smelter.
RHB Research said the Hubei smelter 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 Sarawak Government's approval for the group's Mukah plant, followed by the Samalaju smelter,” it said.
The research house said the high power tariff in China is likely to worsen. As the Hubei smelter recorded a RM12.8mil loss in Q1, 2013.
By disposing of it, RHB Research pointed out the move would certainly end Press Metal’s losses incurred from this upstream unit, while allowing it to enjoy stable, albeit minimal, earnings from the extrusion plant.
“The divestment plan was made known in Q4, 2012, when Press Metal reclassified the smelter as an asset for sale. We removed its outstanding book value (amounting to RM41.7mil) from our valuation since initiating coverage in June.
“Note that its RM50mil one-off disposal loss is slightly more than its net realisable value, although this has largely been priced in. Furthermore it is non-cash in nature,” it said.
Previous article
Interview: China experiences a surge in aluminium power cable capacity building
Next articleJaguar's XF to migrate to aluminium
Grow with
AL Circle
