- We maintain BUY on Press Metal Bhd with a lower fair value of RM2.95/share (vs. RM3.60/share previously) as we reduce earnings to take into account the shutdown of its Mukah plant and lower aluminium ASP assumptions.

- Press Metal reported a decent net profit of RM45.3mil for 1HFY13, which is 8% YoY higher than the RM41.8mil achieved a year earlier. This was on the back of a strong 45% YoY turnover growth to RM1.5bil.

- The higher turnover was mainly contributed by its Samalaju plant (full capacity: ~320,000 tonnes) which commenced operations late last year.

- On a sequential basis, Press Metal’s 2QFY13 topline grew by 10% but net profit suffered due to weaker aluminium prices. EBIT margins shrank to 8% vs. 9.5% in 1QFY13.

- Management highlighted that the insurers have conducted a preliminary assessment on damages on the Mukah plant (caused by a power outage in June) and is confident that it has sufficient coverage. While the quantum is yet to be determined, we anticipate any claims to only be recognised next year.

- At the same time, management has proceeded with restoration works and hope to recommence production by year-end.

- The group is also close to ramping up to full capacity at its Samalaju plant, which in our view, would partly mitigate the loss of activity in Mukah. Management expects to reach full capacity by next month.

- Nevertheless, we have cut our FY13F earnings to RM80.5mil to reflect a five-month closure of the Mukah plant. We have also reduced our aluminium price assumption to US$1,900/tonne for FY13F (from US$1,950/tonne previously) due to prevailing weak spot prices.

- We also trimmed our FY14F earnings to take into account any spillover of the shutdown into next year although Press Metal would likely see deferred cash compensation from the insurance claims then as well.

- We maintain BUY on Press Metal as it remains as one of only two aluminium giants in Southeast Asia. Despite the global headwinds in the near term, demand for aluminium in Asean would continue to be strong in the long term.

- Valuations remain compelling at core FD FY14F-FY15F PEs of 5x-8x on robust EPS CAGR of 59%.

Source: AmeSecurities