We  initiate  coverage  on  Press  Metal  (PRESS) with  a  BUY  and  MYR3.31 FV,  at  a  20%  discount  to  its  fully  diluted  conservative  DCF,  which implies 10.4x FY13 and 5.9x FY14 P/Es. Its Samalaju smelter, now in the final stages of commissioning, is set to multiply production volume. The current  distressed  price  of  aluminium  may  provide  a  high  chance  of  a rebound and potentially lift earnings by 152.9%/77.8% for FY13/FY14.  

- Aluminium giant in the making. PRESS has come the long way before taking its place among the giant aluminium smelters. Its foothold in China via  a  90k-tonne  per  year  (tpy)  greenfield  extrusion  plant  in  Guangdong was an important stepping stone. In 2006, the group acquired a 88k-tpy smelter plant. Although it is now seeking to exit the Hubei smelter, which is  reeling  from  high  power  generation  costs,  it  marked  an  important milestone for PRESS in acquiring the smelting knowledge which later led to its foray into a smelter plan in Sarawak.

- Spreading  its  wings  to  land  of  the  hornbill.  PRESS’  first-mover advantage in Sarawak is its 25-year PPA sealed on favourable rates. Its 80%  owned  Press  Metal  Sarawak  (PMS)  had  invested  MYR900m  in  a 120k-tpy  aluminium smelter  that  it  commissioned  in  Nov  2009.  This  unit has  posted  satisfactory  results  so  far  despite  the  logistics  disadvantage and is now set to focus on aluminium billets to bolster its profitability.  

-  All  eyes  on  Samalaju  smelter.  PRESS  is  in  final  stages  of commissioning Press Metal Bintulu SB (PMB)’s smelter in Samalaju. As this  smelter  is  2.66x  larger  than  its  Mukah  smelter,  it  enjoys  overhead cost efficiency. The state-of-art 400kA smelting technology PMB employs also  consumes  10%  less  power  than  PMS  while  its  proximity  to  Bintulu Port - at 77km vs 187km from Mukah - may save PMS USD30 a tonne in logistics cost. The capex, at only double PMS’, will also help PMB  save on interest and depreciation, on top of its 10-year pioneer status.  

- BUY,  MYR3.31  FV.  PMB  will  double the group’s volume in 2013  and optimize utilisation in 2014. Along with a small recovery in the aluminium price,  this  could  propel  earnings  by  152.9%/77.8%  for  FY13/FY14.  We value  PRESS  at  a  20%  discount  to  our  fully-diluted  conservative  DCF.

Source: RHB