Press Metal Aluminium Holdings Bhd (PMETAL) is facing challenges after a fire at its Samalaju smelting plant affected one-third of its capacity. The fire, which occurred at Plant 3, damaged 100 pots, representing about 9% of the group's total smelting capacity. Operations are expected to be restored within four months, and the company has confirmed that the damaged assets and loss of revenue will be covered by insurance.

Kenanga Stock Broking House has maintained an OUTPERFORM rating despite the incident, with adjustments made to earnings forecasts. Target price (TP) has been lowered to RM5.80 from RM6.35 following the fire and volatility in aluminium prices. The company's FY24 and FY25 earnings projections have been reduced by 18% and 21%, respectively, as the fire is expected to reduce PMETAL's smelting capacity by around 3% for FY24. Despite these adjustments, the overall investment case for the company remains strong, and analysts believe PMETAL will continue to deliver solid results.

The fire, which only affected Plant 3, left the other plants at the Samalaju facility unharmed. Fortunately, no injuries or fatalities were reported. With 40% of its FY24 selling price hedged at USD2,600/MT and 35% for FY25 at USD2,650/MT, the company has taken steps to mitigate the impact of fluctuating aluminium prices. Year-to-date, aluminium prices on the London Metal Exchange (LME) have averaged USD2,360/MT, though PMETAL's original assumption was set higher at USD2,550/MT. The company now expects lower prices in the range of USD2,500-2,450/MT, which has been factored into the revised earnings forecasts.

Despite the near-term setbacks, PMETAL is well-positioned for recovery. The company benefits from its structural cost advantage over international peers due to access to low-cost hydroelectric power. Its long-term power purchase agreements secure its energy needs until at least 2040. PMETAL also holds strategic stakes in two alumina mining operations, Japan Alumina Associate and PT Bintan, which supply 80% of its alumina requirements, ensuring a steady supply chain.

Valuations have been updated following the earnings revision, with the TP reduced by 9% to RM5.80. The updated TP includes a 5% premium, reflecting the company's strong environmental, social, and governance (ESG) performance, as it remains a leading clean energy producer in the industry. With its green credentials, low-cost production, and secure supply chain, PMETAL is still viewed favourably by analysts, despite the fire incident and lower aluminium prices.