- Press Metal yesterday announced on Bursa that it had to shut down its Mukah plant due to the major power outage that happened last week (June 27), which caused a significant drop in temperature for the production pots.

- Although power had since been restored, Press Metal was unable to resume metal production as solidification had taken place in the reduction cells of the potline. Despite efforts, none of the pots could be salvaged. No person was harmed nor was there any uncontrolled emission at the incident.

- At this point of time, management is unable to estimate the full impact and consequence of the incident. However it will close the smelting plant (with a capacity of 120,000 tonnes) for reconstruction works.

- Press Metal said it has adequate insurance coverage and has initiated engagement with insurers to ascertain the damage and cost of reconstruction works.

- As a result, Press Metal has notified its affected customers that the force majeure event would impact the supply of aluminium to its customers. As such, it in the midst of exploring alternative arrangements for its affected customers.

- Nevertheless, it noted that its Samalaju plant’s operations was not affected (220,000 tonnes capacity) and is nearing its ramping-up operations.

- Pending further details, we maintain our earnings forecast and valuations for Press Metal for now. We think Press Metal would be able to claim insurance and could utilise its production in Bintulu to deliver products to the affected customers.

- Nevertheless, we have computed the impact of the closure of its Mukah plant for six months, which would reduce its FY13F net profit to RM36.8mil from RM138.4mil previously. Core FD EPS would also fall to 7.2 sen from 22.2 sen previously. However, the actual shortfall could be less as our rough estimates assume status quo for electricity cost during the period.

- We maintain our fair value of RM3.60/share as we have not changed our FY14F forecasts (12x PE), pending further details from management.

Source: AmeSecurities