Date: 19 September 2024
Broker: UOB Kay Hian
Company Overview
Press Metal Aluminium Holdings (PMAH MK) is a leading aluminium producer, primarily engaged in the manufacturing and trading of primary aluminium and other aluminium-based products. The company is recognized for its integrated operations and strategic expansions, which help maintain its position as a major player in the aluminium industry.
Financial Performance
As of 19 September 2024, Press Metal’s stock price is RM4.85, with a target price set at RM6.30, offering an upside potential of 29.9%. The company has shown consistent financial growth, supported by its extensive aluminium production and strategic initiatives to secure raw material supply.
Strategic Joint Venture in Indonesia
On 18 September 2024, Press Metal entered into a joint venture (JV) with PT Alakasa Alumina Refineri (AAR), PT Dinamika Sejahtera Mandiri (DSM), and PT Kalimantan Alumina Nusantara (KAN) to establish an integrated alumina refinery in Sanggau, West Kalimantan, Indonesia. This new refinery will have an initial annual capacity of 1-1.2 million metric tonnes, with the potential for future expansion. The project is expected to cost US$750 million (RM3.238 billion) and will take 2-2.5 years to complete.
Securing 75% of Alumina Needs
Through this joint venture, Press Metal will secure at least 75% of its annual alumina needs. The company requires 2 million tonnes of alumina annually, and the new refinery, along with its existing investments in PT Bintan and JAA, will enable the company to fulfill a significant portion of this demand. This move is expected to enhance operational efficiency, reduce reliance on third-party suppliers, and drive long-term profitability.
Projected Profit Contribution
Although detailed financial projections are not yet available, initial estimates suggest that this joint venture could contribute at least RM200-300 million in profit to Press Metal through its 80% equity stake in the project. This assumes a normalized alumina price of US$350-380 per metric tonne and similar cost structures to those of the PT Bintan facility.
Long-term Growth and Operational Efficiency
The new alumina refinery is expected to drive long-term growth for Press Metal. By securing a stable alumina supply and improving upstream operations, the company will be able to optimize its production and maintain a competitive edge in the global aluminium market.
Alumina Price Impact and Market Outlook
Alumina prices surged by 60% year-to-date in 2024 due to supply disruptions from major producers like Alcoa and Rio Tinto. However, prices are expected to ease in the second half of 2024 as production resumes. A drop in alumina prices would positively impact Press Metal’s cost structure, potentially improving profitability.
Partnership with Glencore
Press Metal has a long-term alumina supply and aluminium offtake arrangement with Glencore, a global leader in commodity trading. This partnership stabilizes the company’s supply chain and enhances its ability to sell value-added aluminium products (VAPs) to global markets. The collaboration is expected to generate long-term synergies for both companies.
Conclusion
Press Metal Aluminium Holdings is well-positioned for sustained growth, supported by its strategic ventures, including the new alumina refinery in Indonesia. With secured alumina supply, strong partnerships, and a focus on operational efficiency, the company is on track to achieve continued financial success.
