Press Metal posted weaker 2QFY13 earnings of MYR20m, no thanks to the further weakening of aluminium prices while the June power outage dealt  a  second  blow  to  its  short-term  earnings.  However,  we  expect repairs  at  its  smelters  to  be  expedited  even  as  the  aluminium  price shows  signs  of  bottoming  out.  It  is  still  a  BUY,  with  FV  of  MYR2.77, implying a 30% discount to our fully-diluted conservative DCF.    
 
- Lower aluminium price dents 2Q results. Press Metal (Press) posted 2Q  net  profit  of  MYR20m,  -20.6%  q-o-q  but  +4.2%  y-o-y.  Had  we  not recently cut our earnings estimates, the 1HFY13 results would be below our  and street  estimates –  largely  attributable  to a  further weakening in the  aluminium  price  to  USD1,815/tonne  in  June.  This  brought  the average  aluminium  price  for  the  quarter  to  USD1,836/tonne,  which  is lower than our original expectation by US30/tonne.

- Gradual  recovery  from  4QFY13.  Meanwhile,  its  3Q  numbers  do  not look  encouraging,  no  thanks  to  the  power  blackout  on  27  June.  The aluminium  spot  price,  which  averaged  only  at  USD1,770/tonne  in  July before recovering to above USD1,800/tonne in August, was  the second blow  to  earnings.  After  stripping  off  the  fixed  overhead  cost  and incidental  cost  incurred  at  its  Mukah  plant  despite  operations  being halted, we expect Press to record core earnings of MYR10m in 3QFY13. The  Samalaju  smelter  is  expected  to  stabilise  from  October  onwards while some of the pots in Mukah may be back in operation later this year. With these, coupled with the expected recovery  in aluminium prices, we expect Press to begin seeing signs of recovery from 4QFY13.   

- Maintain BUY. We urge investors to look beyond this temporary hiccup and  buy  into  any  share  price  weakness.  Most  of  its  repair  costs  will  be covered  by  insurance.  Its  record  in  fast-tracking  the  installation  of greenfield  smelter  plants  in  Sarawak  gives  us  hope  that  its  repair  and reconstruction  efforts  can  be  completed  by  end-2013.  Since  our  last earnings  revision  already  accounted  for  this  latest  development,  we make  no  changes  to  our  estimates.  Reiterate  BUY,  with  MYR2.77  FV, derived from 30% discount to our fully-diluted DCF. The FV also implies an undemanding 4.9x P/E and 0.9x P/BV, based on FY14 estimates. 

Source: RHB