- We maintain HOLD on Press Metal Bhd with a lower fair value of RM2.15/share (vs. RM2.90/share previously), pegged to 11x FY15F PE.

- The lower fair value is due to our cut in earnings to reflect depressed aluminium prices and premiums caused by an oversupply of the metal. We have reduced FY15F-17F earnings by 7%-42% from our earlier forecasts.

- Surging exports from China and high stock of the metal globally have caused aluminium prices to tumble to six-year lows in recent months. Aluminium prices tumbled 15% YTD to a six year-low of USD1,554/MT yesterday. The YTD average price is ~USD1,753/MT.

- Aluminium prices are expected to remain depressed as China continues to export primary and semi-finished aluminium products. For 1H, exports for these two surged 66% and 44%, respectively. The situation is not expected to improve soon as the economy slows down in the republic while smelters remain opened.

- Likewise, global premiums for the metal have fallen to USD93-USD174/MT currently from the USD430/MT levels seen earlier.

- Last month, Alcoa said it is now expecting a global oversupply of 760,000 tonnes of the metal this year (vs. 326,000 tonnes earlier) due to oversupply from China. Earlier, China had removed a 15% export tax on aluminium products while LME had changed its rules to help move metal out of it warehouses faster.

- To this end, we have reduced our all-in aluminium price assumption to USD1,850/MT for FY15F-17F (from USD2,150/MT previously).

- Press Metal reported a 2QFY15F net profit of RM25mil (-43% QoQ) – bringing the 1H earnings to RM68mil (-23% YoY). Excluding EIs – i.e. partial machinery impairment loss and provision for unrealised forex losses – it would have reported a core net profit of RM232mil for the 1H (vs. RM88mil in 1HFY14). The average spot price was USD1,811/MT in 2Q (1Q: USD1801/MT).

- The lower reported earnings could be attributed to the lower aluminium selling prices during the quarter as well as the temporary partial shutdown of its Samalaju plant. Press Metal also declared a second interim dividend payment of 1.5 sen/share (1Q: 3 sen/share). Ex and payment dates are 25 Aug and 10 Sept, respectively.

- Recall that Press Metal will take full delivery of 500MW of power by year-end for its Phase 3 expansion (which will add another 320,000MT to its capacity from 440,000MT currently). However, we only expect full production towards the end of FY16. Our HOLD call is premised on the depressed aluminium prices and premiums.

Source: AmeSecurities Research - 13 Aug 2015