- We downgrade Press Metal Bhd to a HOLD with an unchanged fair value of RM6.00/share – pegged to 15x PE over FY14F core FD EPS. We deem Press Metal to be fully valued at this juncture given its strong share price performance.

- Press Metal reported a core net profit of RM88mil for 1HFY14F (+95% YoY, +114% QoQ), making up 32% of both our and consensus full-year estimates. Nevertheless, we maintain our numbers as earnings will come in stronger in the 2H.

- Its top line grew by 25% to RM1.9bil compared to RM1.5bil a year earlier. Sequentially, it has improved by 12%.

- Press Metal declared a second tax-exempt interim dividend of 5 sen – bringing the total dividend payout to 10sen (including 5 sen declared earlier in 1Q).

- The strong earnings growth is attributed its Bintulu plant (which achieved full production in end-13). Recall that its Mukah plant was still being ramped up in 1Q but it had achieved full production in the second quarter.

- With both plants running at full capacity, we expect earnings to grow sequentially for the coming two quarters.

- The growth is premised on the recovering global aluminium prices and premiums. The average selling price was ~RM2,100 per metric tonne (MT) during the 2Q.

- We expect prices to rise further due to high demand for the rest of the year. The aluminium spot is currently at USD2,035/MT while global premiums are at USD315-USD440/MT.

- We have forecasted an average selling price of USD2,150/MT for FY14F.

- The group has also proposed a 1-for-1 bonus issue of up to 584.9mil new shares. The bonus issue will be capitalised from the company’s share premium and retained earnings.

- The bonus issue is intended to reward shareholders and increase its capital base. Assuming the maximum scenario, Press Metal’s share base will increase to 1.2bil shares, with an ex-bonus fair value of RM3.00/share (based on FY14F core FD EPS of 20 sen on our estimates).

- Press Metal is a strong beneficiary of rising aluminium prices. Its balance sheet is set to improve while capex will be minimal as its two plants are running at full capacity.

- Nevertheless, we deem Press Metal to be fully valued at this juncture given its strong share price performance in the past few months. Downgrade to HOLD.

Source: AmeSecurities