Published on 24 Sep 2020.
RAM Ratings has reaffirmed the AA3/Stable rating of Press Metal Aluminium Holdings Berhad’s (Press Metal or the Group) RM5.0 bil Islamic MTN (IMTN) Programme (2019/2049). The rating reflects Press Metal’s position as South-East Asia’s largest primary aluminium producer, its superior cost structure, and strong cashflow and debt-servicing ability. The rating also takes into consideration Press Metal’s ability to improve its credit metrics in the near term, despite recording weaker credit metrics in 1H FY Dec 2020.
Supported by competitively priced power via long-term power purchase agreements, Press Metal’s low cost structure has helped it ride out the troughs in aluminium prices. This is evidenced by the Group’s ability to maintain a resilient operating profit before depreciation, interest and tax margin (OPBDIT) of 13.48% in FY Dec 2019 (FY Dec 2018: 14.61%), despite the challenging operating environment amid soft aluminium prices. Following the addition of 320,000 MT of capacity at its Samalaju smelter (Bintulu Line 3), Press Metal is poised to enjoy better economy of scale. This will substantially improve its cashflow from FY Dec 2021 onwards.
Weak aluminium prices compressed Press Metal’s revenue by 17.3% y-o-y to RM3.56 bil in 1H FY Dec 2020. The reduction in revenue, however, was partly mitigated by gains on forward aluminium sales contracts that had been locked in before the outbreak of COVID-19, as well as lower raw material prices by 16.0%. As such, the Group’s OBPDIT improved 3.7% y-o-y to RM558.2 mil. For the full year, Press Metal is anticipated to record RM7.5 bil of revenue (FY Dec 2019: RM8.8 bil), supported by healthier aluminium prices in the second half. Concurrently, its OPBDIT is envisaged to remain strong at RM1.2 bil (FY Dec 2019: RM1.19 bil), with a broader margin of 15.63%. Press Metal’s projected performance in FY Dec 2020 is deemed commendable given the challenging operating landscape.
The Group’s debt-servicing indicator, i.e. funds from operations (FFO) debt coverage, declined to 0.31 times for FY Dec 2019 (FY Dec 2018: 0.49 times). This is, however, in line with our expectations as Press Metal has assumed additional debt for its planned investment - Bintulu Line 3 and PT Bintan Alumina Indonesia (PT BAI). The Group’s debt coverage metrics are anticipated to remain satisfactory at 0.27 times for FY Dec 2020, above our expectation of 0.25 times, in tandem with more robust aluminium prices in the second half.
Given its sizeable funding requirements, Press Metal’s debt load had ballooned to RM3.86 bil as at end-FY Dec 2019, before increasing further to RM4.73 bil as at end-1H FY Dec 2020, bumped up to some extent by the effects of forex translation. Compounded by negative hedging and translation reserves, Press Metal’s gearing ratio worsened to 1.13 times as at 1H FY Dec 2020 (FY Dec 2019: 0.86 times). As at the same date, the Group’s debt-to-OPBDIT ratio stood at a manageable 4.23 times. Nevertheless, we expect Press Metal‘s gearing and debt-to-OPBDIT ratios to ease to a respective 0.70 and 3.5 times through the medium term. This will be underpinned by its healthier cashflow after the commencement of Bintulu Line 3, debt repayment and stronger reserves.
We do not expect any major setback in the construction of Bintulu Line 3 or PT BAI vis-à-vis COVID-19-related lockdown measures. Both are expected to commence in January 2021, as planned. Nevertheless, a persistent decline in aluminium prices that is beyond our expectations, excessive dividend distributions, and unforeseen capex and investments could weaken its credit metrics, thereby posing downside risk to the rating.
Listed on Bursa Malaysia in 1993, Press Metal is involved in aluminium smelting and extrusion. The Group is helmed by Tan Sri Dato’ Paul Koon who, with his family members, collectively own a 55.5% stake (as at 22 April 2020).
Muhammad Syazwan Rusli
(603) 3385 2486
(603) 3385 2577
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Ratings on Press Metal Aluminium Holdings Berhad