Press Metal operates low-cost aluminium smelters in Sarawak that are in the first quartile of the global cost curve. Maintain BUY and MYR3.55TP (32% upside). Investors should look beyond the potential losses arising from its recent fire, as it is adequately insured and aluminium prices are likely to rebound. Repair works at Phase II and construction of its Phase III smelters are well in progress.

• Visit to Samalaju smelter. Last Friday, we visited Press Metal’ssmelting operations in Samalaju, Sarawak. We witnessed repair works at its Phase II smelter, which caught fire last month, and saw that things were well in progress with six pots energised at the point of visit. Management targets the plant to be back in full operation by end-3Q15. Separately, Press Metal also brought us to its Phase III expansion, with construction well into advanced stages despite works only starting fromlate 2014. Some workers were seen busy installing machinery and smelting pots while others were continuing with civil works that we believe were at 70% completion. We were told the stage commissioning is still targeted to begin from Nov 2015.
• Low-cost smelter. Press Metal already runs successful aluminium smelters in Sarawak, which are in the first quartile of the global production cost curve. The company is now replicating its success via the construction of its Phase III plant, which would double its present aluminium smelting capacity in Samalaju, Sarawak. Together with its smelting plant in Mukah, the expansion could see the group expanding its smelting capacity to 760,000 tonnes pa (tpa), which is about 1.5% of global primary aluminium consumption. Meanwhile, London Metal Exchange (LME) aluminium prices and the physical premium paid on top of the LME rate by the rest of the world (ex-China) have continued to decline. However, management believed that prices may have bottomed out but the timing for a rebound is still unknown.
• Maintain BUY and MYR3.55 TP. We believe Press Metal’s expansion plan is certainly timely for it to ride on the potential bottoming out of aluminium prices and to expand its presence in the aluminium industry. We have already projected record earnings for the company in coming years. Therefore, we reiterate BUY with a MYR3.55 TP derived from a 35% discount to our latest DCF valuation, on a fully-diluted basis.