News

Press Metal Berhad (PMETAL) announced that there was a fire incident at the group’s Samalaju smelting plant on 17th May 2015.

The cause of the fire and full impact of the incident is yet to be ascertained. However, based on a preliminary estimate, the impact is not expected to be substantial and it is adequately insured.

Comments

We were surprised with the news. Nonetheless, we are not overly concerned as it will not substantially impact the group’s financials. According to the management, the fire incident will have very minimal impact to the production in Samalaju plant as the disruption only affects a small area of the factory. Hence, we believe it will not lead to any major negative impact to PMETAL’s earnings.

Time to buy on weakness. We would also not be surprised if this news led to negative reactions to PMETAL’s share price today. In fact, PMETAL’s share price has already taken a beating recently, down by 16.3% MoM due to falling aluminium prices. We reaffirm our view that PMETAL’s fundamental remain intact given that: (i) the incident will not substantially impact the group, and (ii) we expect aluminium prices to recover in the near-mediumterm. Therefore, we believe this could be an opportunity for investors to accumulate on weakness. Furthermore, note that there is a high possibility that the stock may be included into the Shariah-compliant universe during the upcoming review in mid-2015, which should garner some support from Shariah funds.

Outlook

Remain bright in the near-medium term as we expect earnings growth from the new capacity to start kicking-in from January 2016 onwards.

We also reaffirm our aluminium price assumption at USD1,900/MT, as we expect aluminium prices to stabilise in the later part of 2H15 when demand is expected to recover, driven by growing usage of aluminium in the auto sector.

Forecast

Unchanged.

Rating

Maintain OUTPERFORM

Valuation

At current price level, the stock is relatively cheap, trading at only FY16E PER of 8.0x, significantly lower than that of FBM70 fwd. PER of 15.0x.

All said, we reiterate our TP of RM5.41, based on unchanged fwd. PER of 15.0x (in line with FBM70’s) on FY16E FD core EPS of 36.1 sen.

Risks to Our Call

Lower-than-expected aluminium prices

Interruption to power supply

Slower-than-expected aluminium demand

Source: Kenanga Research - 20 May 2015