- We maintain HOLD on Press Metal Bhd with a lower fair value of RM3.20/share, pegged to 14x FY15F PE.

- Press Metal reported RM212mil in net earnings for FY14F on the back of RM4.1bil in revenue. Earnings made up 75% and 81% of our and consensus full-year forecasts.

- Press Metal declared a fourth interim tax-exempt dividend of 3 sen/share – bringing the total payout to 16 sen/share (FY13: 2 sen).

- Topline grew by 30% due to higher output from both its Mukah and Samalaju plants that are running at full capacity (440,000 tonnes per annum). Recall that the Mukah was shut down for a few months in FY13 due to a power outage.

- Correspondingly, earnings jumped to RM212mil (from RM15mil in FY13) as it benefited from higher metal selling price last year.

- Sequentially, revenue had risen by 10% to RM1.1bil in 4QFY14. However, there was 49% fall in net earnings due to an unrealised forex losses of RM80.9mil in 4Q.

- Press Metal was a prime beneficiary of rising spot aluminium prices and premium last year due to rising demand amidst global capacity cuts (est. deficit of 125k MT).

- The LME aluminium spot price averaged ~USD1,868/MT last year while global premiums had soared to ~USD420/MT. The high premium was mainly due to demand for physical deliveries as stock were tied to financing deals and locked up in storage.

- However, the dynamics may change this year as new LME rules effective this month are implemented to swiftly move stock out of warehouses.

- Secondly, lower fuel prices are spurring smelters globally to ramp up production while China may cut its 15% export tariff for primary aluminium to support its loss-making smelters.

- Given these, we forecast average spot price and premium of USD1,850/MT and USD300/MT, respectively, for this year (all-in aluminium price: USD2,150/MT). YTD, LME spot price and Singapore premium averaged USD1,824/MT and ~USD325/MT, respectively.

- We see minimal contributions from its Phase 3 expansion plan (capex: RM2bil) as the initial capacity will only come on-stream in 4QFY15. We have factored in a 10% increase in production capacity into our model.

- Given the changing aluminium fundamentals and mixed global outlook, we maintain HOLD on Press Metal.

Source: AmeSecurities