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Publish date: Sat, 08 Apr 2023, 02:05 PM
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Press Metal is largest integrated aluminum producer in Southeast Asia and one of the world-class low cost smelters. (Source: Annual report). From here, we can know that aluminum price will affect the profitability of the Press Metal. Yes, there is a strong relationship between share price of Press Metal and the price of aluminum price. The correlation between share price and aluminum for the last 5 years (2018-2023) is about 90%.

Apart from that, Press Metal claims itself to be a low cost smelter in the world. Why?  The price of aluminum is strongly dependent on the price and availability of electricity. The U.S. Aluminum Trade Groups estimate that the cost of electricity accounts for 30% of the total price of aluminum. In China, electricity consumption is closer to 45% of the price of aluminum. On average, it takes 3 tons of bauxite to produce 1 ton of aluminum. This requires approximately 15,000 kilowatt-hours (kWh) of electricity. (Source:kloeckner metals). The smelting capacity of Press Metal is 1.08m MT, and the majority are being operated in Malaysia               . Malaysia has the fourth lowest domestic electricity tariff in the world after Sweden, China and Taiwan, according to The Ministry of Energy, Green Technology and Water (KeTTHA) (Source:Nst,2018). Therefore, Malaysia low electricity rate is one of the reasons that Press Metal to have competitive advantage as a low cost producer.

The company revenue grew from 6.6billion in 2016 to 15.6billion in 2022, while net income grew from 600million to 1.2billion. The Group’s smelting segment is the main driver of its turnover and profitability. In 2021, the Group witnessed higher aluminum prices as a result of supply constraints and dwindling inventories. Approximately 90% of  smelting products were exported. The key markets for primary aluminium and value-added productsare European countries (28%), Vietnam (16%), Korea (11%), Malaysia (10%) and Japan (8%). From here we can know that the group is exposed to currency risk , higher US dollar will have positive effects to the group and vice versa.

Another good thing about the company is that the company has secured raw material supply by venturing vertically upstream by completing several acquisitions to further secure key raw materials such as alumina. Alumina is the primary raw material for Group’s smelting segment. They successfully completed the acquisition of 50% equity interest in Japan Alumina Associates Pty. Ltd (“JAA”) in February 2019. JAA holds 10% interest in Worsley Alumina Unincorporated Joint Venture (“Worsley UJV”) located in Australia, one of the world’s largest and lowest cost alumina producers. Through this investment, they are entitled to a supply of 230,000 tonnes of alumina per annum. In November 2019, Press Metal subscribed for 25% equity interest in PT Bintan Alumina Indonesia (“PTBAI”) which is principally involved in alumina production in Pulau Bintan, Indonesia. PTBAI has commissioned its Phase 1 facility with 1 million tonnes capacity per annum and is now in the midst of constructing Phase 2 plant with another 1 million tonnes of annual capacity estimated to be completed in the fourth quarter of 2022. With investments in JAA and PTBAI, the Group will be able to secure up to approximately 80% of alumina requirement.

At the price of 4.95, the pe ratio is about 28, with a dividend yield of about 1%. Do you think that the price is cheap given that the company is exposed currency risk and pricing risk? While the demand of aluminum is there due to increase in the demand of electric vehicles and renewable energy

Disclaimer: This information is intended for educational purposes only. It shall not be understood or construed as, financial advice. It is very important to do your own analysis before making any decision

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Raymond Lim, CFA

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