We are relieved that Press Metal has so far received MYR70m from its insurer to compensate for losses incurred from last year’s fire incident. The company is all set to make a comeback with its Phase II aluminium smelter in Samalaju having just resumed normal operations, while Phase III will be commissioned by May 2016. Reiterate BUY with our DCF-based TP unchanged at MYR3.56 (36% upside).

Second interim payment. Press Metal told Bursa Malaysia yesterday that it has received the second interim claim of MYR50m from its insurer, MSIG Insurance (Malaysia) Bhd. The payment partly covered the loss caused by a fire incident at its Samalaju smelter (Phase II) in May 2015 , which resulted in unstable power supply that damaged its smelting pots and halted operations.To date, the company has received a total interim claim of MYR70m.

Positive progress. Press Metal made a total impairment of MYR62.3m in FY15 on the loss of machineries arising from the fire. While the interim claim of MYR70m exceeds its total impairment, we believe the company should receive at least another payment (of unknown amount) as a full settlement of its insurance claim that covers losses of plant and machineries as well as income during the plant repair period. The accident is a good wake-up call for Press Metal to take precautions and better prepare itself should such incident recur. Forecast and key risks. The compensation received certainly helps to improvethe company’s cash flow although the amount would be classified as an exceptional gain given its non-operational and non-recurring nature. Therefore, we make no changes to our earnings estimates. Key risks include further downward pressure on aluminium prices and a sharp weakening of the USD that may hurt its profitability. Any unforeseen interruption of power supply at its smelting plant could also damage its machineries.

Reiterate BUY and MYR3.56 TP. Press Metal is all set to make a comeback with its Phase II aluminium smelter in Samalaju having just resumed normal operations, while Phase III will be commissioned by May 2016. Together with the positive progress on its insurance claim, we are keeping our BUYrecommendation on the stock. Our TP of MYR3.56 is derived from a 20% discount to the fully-diluted DCF.