Published on 23 Aug 2019.
RAM Ratings has assigned an AA3/Stable rating to Press Metal Aluminium Holdings Berhad’s (Press Metal or the Group) proposed Islamic MTN (IMTN) Programme of up to RM5.0 bil. The rating reflects Press Metal’s position as the largest primary aluminium producer in South-East Asia, its superior cost structure as well as its strong cashflow and debt-servicing ability.
Press Metal’s smelters in Mukah and Samalaju have a combined capacity of 760,000 MT. The Group’s Sarawak-based operations allow it to tap the rising demand for aluminium from Asia (ex-China), from where it derives approximately 60% of its revenue. Supported by competitively priced power via long-term power purchase agreements, Press Metal’s production costs sit comfortably in the first quartile of the global primary aluminium cost curve. The Group’s low costs will help it ride out the troughs in aluminium prices, as reflected by its relatively stable operating margins. The Group’s operating profit before depreciation, interest and tax margin (OPBDIT) has been largely maintained between 14% and 17%. Following the completion of a planned 320,000 MT capacity expansion at the Samalaju smelter (Bintulu Line 3), Press Metal is poised to enjoy greater economies of scale.
Press Metal’s robust profitability has translated into RM1.30 bil to RM1.45 bil of annual funds from operations (FFO) over the last three years. As such, the Group’s debt-servicing indicators have been robust during this period, with FFO debt coverage of 0.38 times to 0.49 times. Although Press Metal will assume additional debt for the construction of Bintulu Line 3 and the acquisition of a 25%-stake in a greenfield alumina refinery in Bintan, the Group is still expected to maintain a strong FFO debt coverage of at least 0.3 times. Further, Press Metal has consistently recorded positive operating cashflow despite the requisite heavy working capital requirements.
On the other hand, the rating is moderated by the Group’s hefty debt load amid aggressive investment plans. While Press Metal’s planned investments have strategic merit and are viable, undertaking them in close succession will strain its credit metrics and render the Group more susceptible to external shocks and unexpected execution issues in the near term. We expect Press Metal’s debt level to peak at RM4.24 bil by end-December 2020 (end-June 2019: RM3.63 bil). The Group’s gearing ratio is anticipated to remain at around 0.9 times before improving to about 0.7 times by FY Dec 2021, after the commissioning of Bintulu Line 3.
As a primary aluminium producer, Press Metal is susceptible to volatility of aluminium prices, availability and price of raw materials, rising energy costs, and trade barriers. Due to its high energy intensity, the industry may be subject to increasing regulations on emissions. Additionally, the Group’s investments in alumina refining entail new risks. The alumina refining process yields toxic red sludge, which needs to be properly treated and stored to minimise environmental pollution. The Bintan refinery will utilise the dry disposal method, a safer and more environmentally friendly method to treat the red sludge. The Group’s investment in the Bintan refinery is also exposed to Indonesia’s still-evolving legal framework and policies on commodity exports, as well as issues with land acquisition. Despite the risks involved, Press Metal’s alumina refinery investments are crucial to ensuring security of supply during alumina supply shortages, such as that experienced in 2018.
Listed on Bursa Malaysia in 1993, the Group is involved in aluminium smelting and extrusion. Press Metal is helmed by Tan Sri Dato’ Paul Koon Poh Keong, who is supported by an experienced management team. He and his family members collectively own 55.59% of the Group as at 1 April 2019.
Thong Mun Wai
(603) 3385 2522
(603) 3385 2577
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Published by RAM Rating Services Berhad
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Ratings on Press Metal Aluminium Holdings Berhad