KUALA LUMPUR: Come 2012, Press Metal Bhd will be the largest aluminium smelter in terms of capacity in Southeast Asia.
Its first aluminium smelting plant in Mukah is already operational and its second facility in Samalaju Industrial Park, Similajau — both in Sarawak — is slated for commissioning by end-2012.
The new plant in Samalaju will triple Press Metal’s smelting capacity to 360,000 tonnes from the current 120,000 tonnes produced at its Mukah plant, according to analysts.
This will put the group in a strong position to benefit from a re-acceleration of aluminium demand within Southeast Asia and contribute to the group’s earnings.
Datuk Koon Poh Keong, CEO of Press Metal, said Malaysia could become the regional hub for the production of aluminium products. China, the biggest producer of aluminium products at present, is opposed to exporting and is selling its aluminium products domestically.
“Furthermore, the power cost in China is expensive; around US$75 [RM223.50] to US$85 per MWh, which is not competitive for smelting companies to set up their plants there. Even the [Chinese] government is not encouraging the industry to grow,” Koon said.
He added that some areas in China can provide lower power tariffs, such as Xinjiang and Inner Mongolia, but the lack of transport infrastructure would deter smelters from setting up operations there.
In April, Press Metal was one of four companies which signed power purchase agreement (PPA) term sheets with the state utility Sarawak Energy Bhd (SEB) for the delivery of 1,300MW of power.
With the Bakun dam, which commenced electricity production of 300MW this month, smelters can enjoy relatively lower power cost in Sarawak than in China or anywhere else.
Analysts believe that Press Metal enjoys an “early bird” advantage with its PPA with SEB.
“Most importantly, the PPA paves the way for Press Metal to lock in its long-term power requirements at an attractive rate — and undoubtedly elevate its competitive positioning as an integrated aluminium producer,” AmResearch analyst Mak Hoy Ken said in an Aug 9 research note.
Mak added that Press Metal has an advantage, having made the first move over its rivals as the first smelter operating within Sarawak. Other notable aluminium smelter proposals in the state include Smelter Asia Sdn Bhd’s 700,000 tonne per year smelter and Sarawak Aluminium Co Sdn Bhd’s 1.5 million tonne smelter, both in Similajau.
He highlighted that apart from Press Metal, there has only been some tangible news flow on an MoU between Gulf International Investment Group Holdings Sdn Bhd (GIIG) and Aluminium Corp of China (Chalco) — which have proposed to set up a US$1.5 billion aluminium smelter in Samalaju which is slated to have an initial capacity of 370,000 tonnes per annum. This project is generally referred to as the Smelter Asia project.
“We believe any new aluminium plant set up to rival Press Metal would probably only be ready in two to three years’ time. Plus, Press Metal would have enjoyed a cost advantage via the long-term electricity supply accord signed with SEB as mentioned earlier,” Mak said.
He has a “buy” call on Press Metal with a fair value of RM3.28 with a target price-earnings ratio of 14 times.
For 1QFY11 ended March, Press Metal posted a net profit of RM21.49 million on the back of RM471.59 million in revenue. The company’s earnings per share for the three months in review was 4.98 sen.
In contrast to a year ago, Press Metals net profit for 1Q slipped by a third despite revenue gaining about 20%.
The stock ended trading yesterday at RM1.95, gaining seven sen.
This article appeared in The Edge Financial Daily, August 16, 2011.