- We maintain BUY on Press Metal Bhd with a fair value of RM3.04/share, based on a 12x PE of FY14F core FD EPS of 25.6 sen.

- Press Metal reported a net profit of RM15.3mil for FY13F, compared to RM183.9mil a year earlier. The lower earnings were due mainly to RM40.5mil worth of assets written off for damaged pots at its Mukah plant caused by the statewide power outage last July.

- In addition to that, the group also saw an exception loss of RM48.1mil (recognised in Q3FY13) for the disposal of fixed assets following its exit of the Chinese smelter business.

- Excluding the write-off and disposal loss of fixed assets, Press Metal recorded a core net profit of RM103.8mil, which is within our and consensus estimates of RM98.8mil and RM92.4mil, respectively.

- Revenue grew by 31% to RM3.1bil from RM2.3mil a year earlier. The top line growth was mainly contributed by its Samalaju plant (320,000 tonnes p.a.) which commenced operations last year.

- This helped to mitigate the loss of income (amounting to RM51.3mil) arising from the shutdown of the Mukah plant for a few months.

- The extraordinary items are not a surprise as the company had earlier indicated its intent to make ~RM90mil in provisions for FY13.

- The write-off was done as Press Metal was unable to reach an acceptable agreement with insurers on claims arising from the power outage in Mukah. As such, it has filed a suit against the insurer, claiming for losses and damages.

- We do next expect any further provisions for the Mukah plant (120,000 tonnes p.a.) for this year. In fact, we understand that the Mukah plant is expected to run at full utilisation rate (currently at 80%) by next month while its Samalaju plant is already running at full steam.

- We expect earnings to recover strongly this year, premised on:- (i) full production at Mukah and Samalaju; (ii) higher premium; (iii) Sumitomo’s 20% stake in the Bintulu plant that comes with an off-take agreement; and (iv) expected reduction of net gearing to 1.0x in FY14F. Further upside stems from a positive settlement/agreement for the insurance claims.

- At the current price, Press Metal is trading at 9x PE of FY14F earnings. Maintain BUY.

Source: AmeSecurities