Published on 20 Dec 2021.
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 Southeast Asia’s largest primary aluminium producer, its superior cost structure, and robust cashflow and debt servicing ability. However, the rating is moderated by the Group’s hefty debt load and the volatility of the aluminium industry. We have taken into consideration the Group’s ability to deleverage rapidly and improve its credit metrics in the near term, given its larger smelter capacity and the higher-than-expected aluminium prices.
Buoyed by the upward price trajectory, Press Metal’s revenue climbed 33.17% y-o-y to RM4.74 bil in 1H FY Dec 2021. Likewise, the Group’s operating profit before depreciation, interest and tax (OPBDIT) improved by a substantial 64.8% y-o-y to RM920.0 mil in the same period. In view of its hedging practices, Press Metal will not benefit fully from the rise in aluminium prices due to forward sales contracts entered into earlier. Locked-in prices will nonetheless still translate into healthy profits on account of Press Metal’s low-cost structure. Full-year revenue is forecasted to amount to RM10.4 bil (FY Dec 2020: RM7.5 bil) while OPBDIT is envisaged to remain strong at RM1.8 bil (FY Dec 2020: RM1.1 bil).
Following the full commissioning of its new Bintulu Line 3 smelter in Samalaju (320,000 MT) in October 2021, Press Metal is poised to enjoy better economies of scale with the addition boosting its overall production capacity to 1.08 mil MT per annum. Favourable aluminium prices during the year and competitively priced power via long-term power purchase agreements enabled the Group to significantly broaden its OPBDIT margin to 19.40% in 1H 2021 (1H 2020: 15.69%; FY Dec 2020: 14.66%). We expect Press Metal to maintain an OPBDIT margin of at least 17.0% in the coming years as aluminium prices are anticipated to stay elevated. The higher production capacity will markedly improve its cashflow from FY Dec 2022 onwards.
Due to sizeable funding requirements as well as increased capex and working capital needs, Press Metal’s debt load ballooned to RM5.15 bil as at end-FY Dec 2020 (end-FY Dec 2019: RM3.86 bil), growing further to RM5.44 bil as at end-June 2021. Compounded by sizeable mark-to-market losses from hedging reserves, gearing deteriorated to 1.22 times as at end-1H fiscal 2021 (fiscal 2020: 1.05 times).
However, the Group’s debt-to-OPBDIT ratio – another measure of financial leverage – eased considerably to 2.96 times (FY Dec 2020: 4.70 times), thanks to the higher OPBDIT for 1H FY Dec 2021. Favourable aluminium prices in the medium term, ramped-up earnings from Bintulu Line 3 and the unwinding of the Group’s hedging positions are projected to improve its gearing and debt-to-OPBDIT ratios to below 0.8 times and 2.5 times, respectively, by end-fiscal 2022 under our sensitised projections.
Despite a heavier debt load, the Group’s funds from operations debt coverage (FFODC) was a better 0.33 times in 1H FY Dec 2021 (FY Dec 2020: 0.23 times) on the back of strong aluminium prices. We expect FFODC to remain sturdy at above 0.30 times for the next three years.
Listed on Bursa Malaysia in 1993, Press Metal is involved in aluminium smelting and extrusion. The Group is helmed by Tan Sri Dato’ Koon Poh Keong who, together with family members, collectively owns a 53.9% stake (as at 3 May 2021).
Hani Hamizah Nor Hashim
(603) 3385 2575
Thong Mun Wai
(603) 3385 2522
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Ratings on Press Metal Aluminium Holdings Berhad