KUALA LUMPUR: Kenanga Investment Bank Bhd (Kenanga Research) cut Press Metal Aluminium Holdings Bhd's earnings forecast for financial year 2024 and 2024 (FY24/FY25) by 18 and 21 per cent after a fire broke out at its smelting plant.
Following the update, the firm also reduced the company's target price by 9.0 per cent RM5.80 while maintaning the "outperform" stance.
Press Metal's smelting plant in in Samalaju Industrial Park, Sarawak caught fire, affecting 100 pots or a-third of installed capacity in Plant 3.
It expects to take around four months to restore operations which will reduce the group's smelting capacity by 3.0 per cent in FY24 while the damaged assets and loss of revenue are expected to be covered by insurance.
The firm said the fire incident occurred at its Plant 3 Smelter and reduced plant utilisation to 95 per cent from 98 per cent in FY24.
Furthermore, Kenanga Research revised its earnings forecast for Press Metal to account for lower aluminium price assumptions between US$2,500 and US$2,450 per metric tonne from US$2,550-2,650 per metric tonne and long-term assumption to US$2,200 per metric tonne from US$2,300 per metric tonne.
"The spot price of LME aluminium has been see-sawing in the past two months, rising from below US$2,200 per metric tonne in end-July to peak at above US$2,500 per metric tonne in mid-August before retracing to US$2,300 per metric tonne level currently. "
"This is despite aluminium prices expected to stay firm on the back of the demand recovery in China," it said in a research note.
Kenanga Research added that Press Metal has guided it hedged 40 per cent of its FY24 selling price at US$2,600 per metric tonne and 35 per cent for FY25 at US$2,650 per metric tonne.
"We continue to like Press Metal for its structural cost advantage over international peers given its access to low-cost hydro-power secured under four long-term power purchase agreement (PPA) contracts ending between 2034 and 2040."
"It also has strong secured alumina supply with stakes in two alumina miners, such as Japan Alumina Associate (40 per cent) and PT Bintan (25 per cent) which supply 80 per cent of its requirements, as well as green investment appeal as a clean energy source producer," it said