- The Edge Malaysia reported over the weekend that Press Metal Bhd might write off additional RM20mil-RM30mil this year.

- According to a company executive, the additional provision is for assets written off following the shutdown of its Mukah plant last year.

- Recall that last year, the group made provisions of RM40.5mil for assets written off due to pots that were damaged during the power outage in June. This is additional to a loss of income of RM51.3mil in FY13 caused by the shutdown.

- Nevertheless, Mukah plant is already re-commissioned and is expected to resume full operations this month (full capacity: 120,000 tonnes per annum). Its Samalaju plant is already running at full utilisation rate of 320,000 tonnes p.a.

- We are unperturbed by the additional provisions as core earnings are expected to remain intact (FY14F: RM165mil) due to strong aluminium premiums and full production at its two plants.

- While aluminium prices have been coming off (down 10% YoY to RM1,697.50/tonne currently), global premiums have been increasing from USD200/tonne to as high as USD500/tonne.

- Press Metal’s strong earnings recovery this year is 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