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Press Metal

Recommendation: HOLD
Stock Code: 8869 Bloomberg: PRESS MK Price: MYR1.39 12-Month Target Price: MYR1.50 Date: August 13, 2010

Board: Main Pr i ce 30 Day Movi ng Aver age Price (MYR)


2.00

Sector: Industrial Products 1.80

1.60
GICS: Materials/Aluminum 1.40

Market Value - Total: MYR507.1 mln 1.20

1.00

Summary: Press Metal Berhad (Press Metal) is involved in


0.80

0.60
smelting alumina, manufacturing and trading of aluminum 0.40
billets and extrusions with operations in Malaysia and China.
The group has a 27.72% stake in listed PMB Technology Vol ume Vol ('000)

Berhad. The stock is a component of FBM EMAS. 6,000

4,000
Analyst: Su Peng Ng 2,000

0
Aug 07 Oct 07 Dec 07 Feb 08 May 08 Jul 08 Sep 08 Nov 08 Feb 09 Apr 09 Jun 09 Aug 09 Oct 09 Jan 10 Mar 10 May 10 Jul 10

Results Review & Earnings Outlook Recommendation & Investment Risks

 Press Metal’s 1H10 results came in above our expectations. Stripping  We maintain our Hold recommendation and 12-month target price of
out MYR18 mln in negative goodwill incurred in 1Q10, 1H10 recurring MYR1.50 for Press Metal.
net profit of MYR29 mln accounted for 59% of our previous 2010
estimate, with the deviation coming from higher-than-expected  Our target price remains based on a blend of PER and P/B relative
revenue. valuation methodologies. We apply a target PER and P/B of 7x (from
8x) and 0.9x (from 1x) to our estimated 2011 EPS and BVPS
 Press Metal’s 1H10 revenue surged 57% YoY due to the start of its respectively. We also add our estimated 12-month net DPS of 1.3 sen.
aluminum smelter plant in November 2009. Operating margin also Our EPS and BVPS calculations are fully diluted after taking into
expanded to 8.6% from 4.3% given savings from purchasing account Press Metal’s 63.98 mln outstanding warrants (exercise price
aluminum ingots from 3rd parties. at MYR0.50), which expire on Sep. 29, 2010. Our reduced target
multiples caters for our less robust outlook for the global economic
 2Q10 revenue also improved 14% QoQ due to higher sales volume. health given more signs of potential weakness in the system.
The group registered lower profits (operating profit fell 3% QoQ) given
higher raw material cost (alumina price rose 0.6% QoQ) and a weaker  The group is trading at 2011 PER of 8x, a level that fairly values the
selling price (aluminum price fell 2% QoQ). group, in our opinion. Press Metal’s balance sheet is stretched with a
net gearing ratio of 1.7x as at June 30, 2010 that could limit investor
 The 2nd phase of Press Metal’s smelter will come on line by 2H10, interest. Given these factors, we reiterate our Hold call.
doubling capacity. We raise our 2010-2011 assumptions to account for
strong 1H10 results, lifting our 2010 and 2011 net profit estimates to  Risks to our recommendation and target price include a ramp up in
MYR76.3 mln (from MYR68.2 mln) and MYR64.1 mln (from MYR56.1 aluminum production in China which would send aluminum prices
mln), respectively. downwards and potential operational issues at its new Sarawak
smelter. Furthermore, higher interest rates will lift Press Metal’s debt
 Press Metal declared an interim dividend payment of 2% (or 1 sen), servicing burden.
translating into a yield of 0.7%.

Key Stock Statistics Per Share Data


FY Dec. 2009 2010E FY Dec. 2007 2008 2009 2010E
Reported EPS (sen) 7.3 20.9 Book Value (MYR) 1.80 1.64 1.73 1.90
PER (x) 19.0 6.7 Cash Flow (sen) 138.5 24.9 35.9 52.6
Dividend/Share (sen) 1.5 2.0 Reported Earnings (sen) 119.1 2.8 7.3 20.9
NTA/Share (MYR) 1.70 1.87 Dividend (sen) 3.0 1.8 1.5 2.0
Book Value/Share (MYR) 1.73 1.90 Payout Ratio (%) 8.3 10.9 13.8 11.0
No. of Outstanding Shares (mln) 364.8 PER (x) 1.2 49.3 19.0 6.7
52-week Share Price Range (MYR) 1.17 - 1.60 P/Cash Flow (x) 1.0 5.6 3.9 2.6
Major Shareholders: % P/Book Value (x) 0.8 0.8 0.8 0.7
Koon Family 34.7 Dividend Yield (%) 2.2 1.3 1.1 1.4
Kwan Family 5.9 ROE (%) 22.3 6.4 4.8 7.5
Dato' Megat Abdul Rahman bin Megat Ahmad 4.3 Net Gearing (%) 69.3 129.2 160.8 151.9
* Stock deemed Shariah compliant by the Securities Commission

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Press Metal
Recommendation: HOLD
Stock Code: 8869 Bloomberg: PRESS MK Price: MYR1.39 12-Month Target Price: MYR1.50 Date: August 13, 2010

Quarterly Performance
FY Dec. / MYR mln 2Q10 2Q09 % Change
Reported Revenue 449.5 281.7 59.6
Reported Operating Profit 35.7 22.0 61.8
Depreciation & Amortization NA NA NA
Net Interest Income / (Expense) -15.2 -7.8 93.4
Reported Pre-tax Profit 21.0 14.6 43.8
Reported Net Profit 15.2 13.7 10.9
Reported Operating Margin (%) 7.9 7.8 -
Reported Pre-tax Margin (%) 4.7 5.2 -
Reported Net Margin (%) 3.4 4.9 -
Source: Company data

Profit & Loss


FY Dec. / MYR mln 2008 2009 2010E 2011E
Reported Revenue 1,120.0 1,180.4 1,541.4 1,705.5
Reported Operating Profit 90.8 81.4 149.8 161.2
Depreciation & Amortization -80.5 -104.5 -115.7 -115.5
Net Interest Income / (Expense) -41.8 -36.2 -56.9 -63.2
Reported Pre-tax Profit 34.7 38.3 113.1 100.5
Effective Tax Rate (%) 76.2 26.3 25.0 25.0
Reported Net Profit 10.3 26.7 76.3 64.1
Reported Operating Margin (%) 8.1 6.9 9.7 9.4
Reported Pre-tax Margin (%) 3.1 3.2 7.3 5.9
Reported Net Margin (%) 0.9 2.3 5.0 3.8
* 2010 net profit includes negative goodwill of MYR18 mln.
Source: Company data, S&P Equity Research

All required disclosures and analyst certification appear on the last two pages of this report. Additional information is available upon request.
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Recommendation and Target Price History P rice (M YR)


Date Recommendation Target Price 2.0
31-May-10 Hold 1.50
1-Sep-09 Hold 1.30 1.8
28-May-09 Hold 0.95
1-Dec-08 Sell 0.60 1.6

25-Aug-08 Sell 1.15


1.4
10-Jul-08 Hold 1.30
1.2

1.0

0.8

0.6

0.4
Aug 07 Nov 07 Feb 08 May 08 Aug 08 Nov 08 Feb 09 May 09 Aug 09 Nov 09 Feb 10 May 10 Aug 10

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