Press Metal’s smelters were hit harder than expected by the June power outage in Sarawak, while further softening of aluminium prices since we initiated  coverage  has  undermined  our  recommendation.  However,  the aluminium  price  is  showing  signs  of  bottoming  out  and  we  expect  its smelter repairs to be expedited. It is still a BUY, albeit with a lower FV of MYR2.77, implying 30% discount to our fully-diluted conservative DCF.    
 
- Blackout jolts Sarawak smelters. Sarawak’s worst ever power outage in  late  June  abruptly  halted  Press  Metal’s  80%-owned  Mukah  smelting operation.  The  damage  is  still  being  assessed  by  its  insurance company’s adjuster  while  it  is  kept  busy  repairing  the  damaged  pots. Although its Samalaju smelter escaped severe damage, our checks with industry  experts  suggest  a  temporary  blip  in plant  efficiency,  with  a  few pots  possibly  sustaining  serious  damage  and  requiring  repairs  or  parts replacements.       

- Aluminium  price  could  be  bottoming  out.  The  aluminium  price  has weakened  since  early  2013.  As  the  spot  price  had  dropped  below  its multiple-year support level of USD1,800 a tonne in mid-June, this will put further strain on Press Metal’s financials in the near future. With the spot price averaging USD1,888 YTD vs our estimate of USD1,950 a tonne in 2013,  we  decide  to lower  our price  projection for  the  year  to  USD1,900 but retain our aluminium price estimates for 2014 and thereafter.

- Reiterate  BUY,  FV  lowered  to  MYR2.77.  The  double  blow  of  power outage and drop in aluminium prices impacted Press Metal’s short-term earnings,  for  which  we  slash  our  FY13  core  estimates  by  42.8%  but retain our FY14 numbers. Meanwhile, we believe most of the repair cost will  be compensated  by insurance.  Also, its  track  record in  fast-tracking the installation of greenfield smelter plants in Sarawak gives us hope that its repair and reconstruction  efforts can be completed by end-2013. We urge  investors  to  look  beyond  this  temporary  hiccup  and  buy  into  any share  price  weakness.  Our  FV  is  trimmed  slightly  to  MYR2.77  as  we lower our near-term estimates, but remains undemanding due to its 30% discount  to  our  fully-diluted  DCF.  The  FV  also  implies  an  undemanding 4.9x P/E and 0.9x P/BV, based on FY14 estimates. 

Source: RHB