PETALING JAYA: Press Metal Aluminium Holdings Bhd will likely acquire brownfield upstream assets to better manage the cost and supply of carbon anode and alumina, said Affin Hwang Capital.
This comes as the group aims to expand vertically in the supply chain to weather volatility in its key raw materials.
Carbon anode and alumina contribute close to 50% of Press Metal’s total production costs.
In a coverage initiation report, Affin Hwang Capital said Press Metal’s earnings growth will likely come from better product mix.
“In our view, capacity expansion is limited in the near future given limited energy availability.
“Press Metal is targeting to raise value-added aluminium products capacity to 60% of total capacity in 2019.
“This should contribute positively to the bottom line as value-added aluminium products enjoy better margins compared to standard P1020 ingots,” the research house said.
To date, the group has formed a joint venture with Sunstone and acquired 50% of Japan Alumina Associates, securing 50% of carbon anode and 15% of alumina for its current requirements.
The JAA acquisition was priced at RM739mil, which will be fully funded through borrowings.
Through the acquisition, Press Metal is able to secure 230,000 tonnes of alumina, which is equivalent to 15% of its annual alumina requirement.
The group has to buy alumina at market price, but it will gain 50% share of profit from JAA.
Meanwhile, the joint venture with Sunstone in China is for the manufacturing of pre-baked carbon anodes with an expected capital expenditure of RM280mil.
Through the joint venture, Press Metal has secured 50% of its carbon anode requirement of 300,000 tonnes per annum.
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