Press Metal registers better 3Q results

by **Cals** Wed 20 Nov 2013, 18:42

Business & Markets 2013

Written by AmResearch

Wednesday, 20 November 2013 10:58

Press Metal Bhd
(Nov 19, RM2.41)
Maintain buy at RM2.36 with a fair value of RM3.07: We maintain “buy” on Press Metal with a fair value of RM3.07 per share, based on 12 times price-earnings ratio (PER) of 2014 financial year (FY14) core FD earnings per share (EPS) of 25.6 sen.
Press Metal’s earnings for the nine months of FY13 (9MFY13) came in at RM43.6 million, which is 76% lower than RM178 million a year ago. The lower earnings were mainly due to a RM51.6 million disposal loss following the sale of its Chinese smelter assets and RM20.3 million operating losses due to costs incurred when its Mukah plant was shut down in June.
However, its core net profit remained intact at RM95.2 million. At an annualised basis of RM149 million, this has surpassed our FY13 full year forecast of RM98 million, as the shutdown was less severe than we had expected.
In fact, sales were encouraging with Press Metal’s top line expanding by 40% year-on-year (y-o-y) to RM2.3 billion in 9MFY13. This is due mainly to higher contribution from its Bintulu smelter plant with production having been ramped up since it commenced operations in the fourth quarter (4Q) of FY12 (full capacity: 320,000 tonnes).
Press Metal declared an interim tax-exempt dividend of one sen per share.
We expect 4QFY13 earnings to improve further as the disposal of the Chinese smelter assets is expected to be one-off while its Mukah plant has re-commenced operations.
During a recent visit to its Bintulu plant, we were pleased to learn that it had reached 98% utilisation rate while the Mukah plant’s utilisation rate now stands at about 60%. The Mukah plant is expected to reach full capacity (120,000 tonnes) in three months.
Press Metal’s 3QFY13 results surpassed our expectations and we are confident of earnings picking up steam next year. Earnings will be driven by: (i) full resumption of operations at the Mukah plant; (ii) full ramp-up of the Bintulu plant; (iii) gain on disposal of a 20% stake in Bintulu plant to Sumitomo Corp; (iv) insurance compensation for the shutdown of the Mukah plant; and (v) exit of loss-making Chinese operations.
Sumitomo’s recent acquisition of a 20% stake in the Bintulu plant comes with an off-take agreement and will help reduce Press Metal’s gearing to 1.2 times in FY14 from 1.5 times as at end-August 2013.
Pending a meeting with management, we maintain our earnings expectations for now, with further upside stemming from an earlier than expected recovery in operations at its Mukah plant. Maintain “buy”. — AmResearch, Nov 19

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This article first appeared in The Edge Financial Daily, on November 20, 2013.