[RAM] RAM Ratings upgrades Press Metal's RM5.0 bil IMTN Programme to AA1/Stable
RAM Ratings has upgraded the rating of Press Metal Aluminium Holdings Berhad’s (Press Metal or the Group) RM5.0 bil Islamic MTN (IMTN) Programme (2019/2049) to AA1 from AA2. Concurrently, we have revised its outlook to Stable from Positive.
The upgrade is premised on Press Metal’s strengthening vertical integration in line with planned upstream business expansion, as well as our expectations that it can maintain strong credit metrics, commensurate with an AA1 rating, despite elevated capital expenditure requirements in the medium term. The impact of planned fresh borrowings to fund a new alumina refinery project in Kalimantan, Indonesia (via PT Kalimantan Alumina Nusantara – PT KAN) will be largely offset by substantial debt repayments due in the next two years. Strong cashflow generation, anchored by the Group’s low operating cost structure and a positive aluminium price outlook, should continue supporting its debt repayment ability.
Press Metal’s strategic move to deepen its vertical integration in the alumina business is a significant step towards enhancing its long-term competitiveness and profitability. Its 80%-stake in PT KAN will enhance the security of supply of the critical raw material for its smelting operations. Upon completion of the Kalimantan refinery, the Group will be able to wholly source its alumina requirements internally. Surplus production can be sold on the open market, while increased earnings from the alumina business can serve as a hedge against potential margin erosion in the smelting segment.
The Group charted strong financial results in the past year, backed by favourable aluminium prices. Its robust cashflow allowed continued deleveraging, seeing total debt ease to RM4.2 bil as at end-September 2024 (end-December 2023: RM4.6 bil). This contributed to improved gearing and debt to operating profit before depreciation, interest and tax (OPBDIT) ratios of 0.40 times and 1.53 times, respectively, while annualised funds from operations debt coverage (FFODC) was a solid 0.71 times.
Considering a relatively stable debt level over the next few years, already locked-in selling prices for forward sales, continued profit accumulation and a conservative aluminium price assumption of USD2,200/MT, our sensitised projections indicate that the Group can comfortably sustain gearing and debt-to-OPBDIT ratios of below 0.4 times and 2.0 times and FFODC of above 0.5 times, in keeping with the rating. We view aluminium prices to be supportive of our projections in the medium term, given still-tight global supply, rising production costs, subdued capacity expansions and the continued pick-up in demand for the metal.
The rating overall reflects Press Metal’s position as Southeast Asia’s largest primary aluminium producer, its firmer business footing from enhanced integration, a superior cost structure against global peers’, the Group’s robust debt servicing ability and strong balance sheet position. The price volatility in the aluminium industry, however, remains a key moderating factor.
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 50.34% stake (as at 4 April 2024).
Analytical contacts
Hani Hamizah Nor Hashim
(603) 3385 2575
hani@ram.com.my
Thong Mun Wai
(603) 3385 2522
munwai@ram.com.my
Media contact
Sakinah Arifin
03 3385 2500
sakinah@ram.com.my