AmWatch - Press Metal : To benefit from high premiums and price recovery BUY, 8 May 2014

STOCK FOCUS OF THE DAY

Press Metal : To benefit from high premiums and price recovery               BUY

We maintain BUY on Press Metal Bhd with an unchanged fair value of RM4.50/share – pegged to 12x PE on FY14 core FD EPS of 37.5 sen. Press Metal is in the early stages of an earnings up-cycle. Key takeaways from a luncheon meeting we hosted last week are as follow:-

(i) Management expects aluminium premium to be sustainable at the current level, and to only face downward pressure when aluminium prices reaches USD2,000/metric tonne (MT) and above. Global premiums are between USD150-USD500/MT currently (vs. an average of USD150/MT a year earlier). (ii) Its Mukah plant is currently wholly-producing billets, which command higher premiums compared to P1020 ingots. At the same time, it is increasing the production of A356 ingots at its Samalaju plant as the product commands similar margins to the billets. (iii) Sumitomo’s acquisition of a 20% stake in the Samalaju plant has been completed with proceeds of USD140mil. At any given time, about 25%-30% of stocks are off-taken by Sumitomo. (iv) Aluminium spot prices (USD1,738.75/MT currently) are currently trading close to the trough level of a 4-year cycle. Prices are expected to increase due to a supply shortfall. For the first time in 10 years, there will be a global deficit of aluminium products this year.

(v) As heavy capex has been front-loaded, cash flow generated from its operations will be channelled towards the paring down of its debts. Net debt/EBITDA is expected to improve from 6.2x at end-FY13 to 1.2x by end-FY16F. We expect 1QFY14 earnings to be slightly subdued as its Mukah plant was still being ramped up while aluminium prices and premiums had yet to increase. We forecast stronger earnings from 2QFY14 onwards. We advise investors to accumulate Press Metal given the recent retracement in share price. Maintain BUY.

Others :

Economic Update : Total trade surplus of RM26.39bil in 1Q14

KKB Engineering: Slow start to year, potential O&G jobs in 2HFY14            HOLD

Fraser & Neave : Earnings supported by volume and margin expansion HOLD

Maxis : A weak start       HOLD

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DISCLAIMER:

The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice.

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