Infrastructure - Smelter Asia still in the fray OVERWEIGHT

kiasutrader

Publish date: Fri, 30 Mar 2012, 09:56 AM

- The Star reported today that Smelter Asia Sdn Bhd is stillin negotiations with Sarawak Energy Bhd (SEB) for the supply of power in excessof 600MW for the development of an aluminium smelter in Samalaju IndustrialPark, Bintulu. We gather that negotiations are still ongoing although it isuncertain at this juncture how long the talks would continue.

- To recap, Smelter Asia is a JV between Gulf InternationalInvestment Group Holdings Sdn Bhd (GIIG) and Aluminium Corp of China (Chalco).Both parties inked a pact last April to jointly construct a US$1.6bil (RM5bil)aluminium smelting plant with an annual capacity of 370,000 tonnes.

- GIIG is controlled by tycoon Tan Sri Syed Mokhtar Al-Bukharyand UAE-based businessman Mohamed Ali Rashed Alabbar. State-backed Chalco isChina's largest aluminium producer.

- Smelter Asia is proposing to build a 370,000-tonne smelter. This would be almost of a similarcapacity as Press Metal's facilities (combined Phases 1 & 2) when thelatter's own new 240,000-tonne smelter commences operations in stages byend-3Q12. But, the reported US$1.6bil valuation for the Smelter Asia facilityis higher than our estimate of ~US$900mil for both of Press Metal's facilitiesin Mukah and Samalaju combined.

- This latest development also follows an announcement bySarawak Aluminium Co (Salco) ' a JV between Rio Tinto Aluminium (M) Sdn Bhd andCahya Mata Sarawak ' to call off its plans to build a RM7bil smelter after it failed to strike a deal to purchase electricityfrom SEB. We understand that the negotiated power tariff was for the supply of750MW for the project.

- We maintain our view that Press Metal has already stolen amarch over its rivals ' as Phase 2A of its Samalaju smelter is targeted forcommissioning by September, followed by Phase 2B in mid-2013.

- More importantly, Press Metal is among four pioneerinvestors that have already secured long-term power supply agreements(25-years) with SEB at attractive rates. Its Samalaju smelter is expected totake in 480MW of power, adding to the estimated 200MW it already receives inMukah (combined: 680MW).

- Furthermore, we gather that it would probably take two tothree years for any new startups, including Smelter Asia, to commenceoperations.

- We continue to like Press Metal for its strategictransformation into the largest integrated producer of Aluminium productswithin ASEAN. The stock is only trading at alluring FY12F-14F PEs of 6x-10xagainst robust EPS CAGR of 23%. From anend-user standpoint, it is also a direct play on the commissioning of Bakun Damthrough its attractive long-term power supply agreement with SEB.

Source: AmeSecurities

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