Press Metal Bhd
(Oct 31, RM6.60)
Maintain “hold” with a target price (TP) of RM6: Press Metal reported a core net profit of RM82.6 million for the third quarter of financial year 2014, up 38% quarter-on-quarter, up 65% year-on-year (y-o-y), bringing the ninth month core net earnings to RM170.7 million, up 26.4% y-o-y.

This makes up 61% and 68% of our and consensus full-year financial year 2014 (FY14) estimates respectively. We maintain our numbers as we expect contributions to come in stronger in the last quarter.

For the ninth month period, its revenue grew by 26% to RM2.9 billion due mainly to higher metal selling prices and aluminium premium. In addition, the period also saw full contributions from its two plants in Mukah and Bintulu, Sarawak, that are running at full capacity (440,000 tonnes). Recall that the Mukah plant was shut down in July last year due to a power outage.

The average spot price quoted on the London Metal Exchange (LME) for the quarter was US$1,987 (RM6,536) per tonne compared with US$1,782 per tonne for the same period last year. The LME spot price last closed at US$2,037 per tonne. Meanwhile, global premiums are being quoted at US$312 to US$494 per tonne range.

We maintain our all-in aluminium price of US$2,150 per tonne for FY14. The year-to-date average LME spot price is RM1,845 per tonne.

Press Metal declared an interim dividend of 6 sen per share, bringing the total payout to 16 sen per share for FY14 to date (yield of 2.3%). This is within expectations, as the management noted earlier that it is looking at a dividend payout of 30% to 50%.

Note the proposed 1-for-1 bonus issue of up to 584.9 million new shares has been approved.

The ex-date and entitlement date for the bonus issue are Nov 6 and Nov 10 respectively.

Also last Wednesday, Press Metal announced to Bursa Malaysia that major shareholder Alpha Milestone Sdn Bhd and persons acting in concert are looking to convert all of their outstanding RM210.5 million eight-year 6% redeemable convertible secured loan stocks (RCSLS).

Based on the maximum scenario, Press Metal’s share base will also increase from 549 million shares (as at Sept 29) to 1.289 billion (post 1-for-1 bonus issue).

We estimate the advance conversion of 95.7 million RCSLS (65.7% of total issued) will result in interest savings of RM12.6 million. We maintain our “hold” call on Press Metal for now as we review our FY15 numbers and the outlook on global aluminium demand for next year. — AmResearch, Oct 31

This article first appeared in The Edge Financial Daily, on November 3, 2014.