Sarawak’s decision to impose a 1 per cent sales tax on exported aluminium products from January 1 may end up hurting the earnings of Press Metal Aluminium Holdings Bhd in the future, estimates AmInvestment Bank, according to a report.
Based on the estimates, the new tax is likely to cost Press Metal by RM64 million and RM89 million in FY20-21, eroding FY20-21 net profit by 6 to 8 per cent and lowering FV by about 7 per cent to RM3.54 (based on the same 18x earnings multiple).
AmInvestment says Press Metal is currently seeking clarification from the state government on the new tax matter.
Furthermore, according to AmInvestment, earnings outlook for aluminium smelters globally is cloudy due to weak aluminium price and high input costs, resulting in margin squeeze.
Besides, the research house says the company’s valuations are at a premium versus its global peers, meaning the upside to its share price could be capped.
"However, this is mitigated by Press Metal's recent signing of a 15-year power purchase agreement (PPA) with Sarawak Energy Bhd for the supply of 500MW of electricity, enabling it to power an additional annual aluminium smelting capacity of 320,000 tonnes," it said.
The research house believes the overall smelting capacity of Press Metal to grow by 42 per cent to 1.08 million tonnes by 2021 from 760,000 tonnes currently.