Journey to Wealth
Press Metal - Sunshine after the rain BUY
BUY
Fair Value RM2.42
Investment Highlights
Source: AmResearch
Fair Value RM2.42
Investment Highlights
- Maintain BUY on Press Metal with a lowered fair value of RM2.42/share ' pegged to an unchanged target PE of 13x. This is to account for a softer 1H12 for the global aluminium market amid as macro cycles remained fluid.
- Against this backdrop, we expect Press Metal's upcoming 2QFY12 results ' scheduled for release this week ' to be relatively weak. Benchmark aluminium prices fell 9% QoQ to US$1,978/tonne in 2Q12 as buying sentiment turned cautious on account of weaker macro data points.
- Stacking it up, we have trimmed FY12F-14F core net profits by 7%-14% on:- (i) our more conservative pricing assumptions; and (ii) some initial start-up cost for its new aluminium smelter at Samalaju.
- Press Metal's prospects should be lifted by additional capacity kickers moving into 2H12. With construction completed and pre-testing works ongoing, commercial operations are pencilled in for a 4QFY12 launch (Phase 2B: 1QFY13). Abroad, our channel checks reveal that aluminium prices may rebound in the coming months on renewed hopes of policy easing ' notably in China.
- To be sure, industry reports have pointed towards some nascent signs of buying interest in Asia by Chinese traders as current spot prices (US$1,823/tonne) are hovering near year-lows. Further price support may come from an easing in aluminium supply on production cutbacks by smelters.
- Press Metal could raise up to RM143mil to part-finance Phase 2 via the conversion of 65% of its major shareholders' (Koon family) entitlement in the group's 2011/2019 warrants. Prior to this, Press Metal had raised another RM350mil in syndicated term loans for Phase 2B.
- We continue to like Press Metal for its transformational growth prospects as one of only two aluminium smelters operating within a growing ASEAN market. Phase 2 would help triple its smelting capacity to 360,000 tonnes when it is fully commissioned next year.
- On revised earnings, we expect any tangible earnings impact from Phase 2 to only filter through in FY13F (+45%) when operational efficiencies are gradually ramped up. To this end, we reckon that Press Metal is still open to foreign investors when its new plant kicks off ' including Japan's Sumitomo which already has a 20% stake in Phase 1.
- Indeed, valuations remain alluring at FD12F-14F PEs of 5x- 9x against robust EPS CAGR of 23%. With its capex already frontloaded, we also forecast Press Metal's net gearing ratio to improve to 1.4x by FY14F from an estimated 2.1x in FY12F (FY11: 1.4x).
Source: AmResearch
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
