CORPORATE RATINGS

Press Metal Aluminium Holdings

Berhad
▪ Proposed Islamic Medium-Term Notes Programme of up
to RM5 bil in nominal value

August 2019
CREDIT RATING RATIONALE
CORPORATE RATINGS
August 2019

Press Metal Aluminium Holdings Berhad

Initial Rating
Ratings

▪ Proposed Islamic Medium-Term Notes (IMTN) Programme of up to RM5 bil in nominal value
AA3/Stable [Assigned]

Issue Details Analysts

Thong Mun Wai
Islamic Contract (603) 3385 2522
▪ Wakalah Bi Al-Istithmar munwai@ram.com.my

Profit Margin Ben Inn

▪ To be determined (603) 3385 2510
ben@ram.com.my
Tenure
▪ 30 years Related Criteria, Methodologies and Publications
i. Corporate Credit Ratings, April 2006
Lead Arranger ii. Business Risk/Financial Risk Matrix for Corporate
▪ Maybank Investment Bank Berhad Ratings, August 2011

Trustee
▪ Pacific Trustees Berhad

Shariah Advisor
▪ Maybank Islamic Berhad

Security
▪ None

RAM Ratings’ rating is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security’s market price or its suitability for a
particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
RAM Ratings | Corporate Ratings

Company Description

Press Metal Aluminium Holdings Berhad (Press Metal or the Group) is involved in aluminium smelting
and extrusion. In 1986, the Group started in the extrusion business, producing semi-finished products
for the Malaysian market. It has also been involved in aluminium extrusion in China since 2005. The
Group has an annual extrusion capacity of 210,000 MT, i.e. 50,000 MT in Klang and 160,000 MT in the
Guangdong province, China.

The Group ventured into aluminium smelting in 2006, with the acquisition of a 90,000 MT aluminium
smelter in Hubei, China. In 2009, Press Metal constructed its first aluminium smelter in Sarawak, i.e. a
120,000 MT facility in Mukah under Press Metal Sarawak Sdn Bhd. This was followed by another one
in Samalaju, under Press Metal Bintulu Sdn Bhd. Phase 1 (Bintulu Line 1 - 320,000 MT) of the smelter
commenced operations in 2012 while the construction of Phase 2 (Bintulu Line 2 - 320,000 MT) was
completed in 2015. The overall smelting capacity of Press Metal currently stands at 760,000 MT. The
Group is no longer involved in smelting operations in China, after having sold its Hubei smelter in 2013.

In the last few years, Press Metal has made investments to complement its smelting operations. In
2016, the Group formed a JV with China’s Sunstone Development Co Ltd to build a pre-baked carbon
anode manufacturing facility, with a total capacity of 300,000 MT. Besides alumina, carbon is the other
main raw material in the smelting process. Press Metal has a 20% stake in the JV and will be entitled
to 220,000 MT of annual carbon anode production (around 60% of its requirements) from this
arrangement.

In 2018, Press Metal acquired Leader Universal Aluminium Rods Sdn Bhd (subsequently renamed
Press Metal Aluminium Rods Sdn Bhd (PMAR)), to double its capacity for the production of wire rods -
a value-added product - to 200,000 MT. In February 2019, the Group completed the acquisition of a
50% interest in Japan Alumina Associates (Australia) Pty Ltd (JAA), which in turn owns 10% of Worsley
Alumina Unincorporated Joint Venture, operated by South32.1 This represents one of the world's largest
(4.6 mil MT) and lowest-cost alumina producers. The acquisition entitles Press Metal to 230,000 MT of
output, which translates to about 15% of its current alumina needs.

Press Metal recently signed a 15-year power purchase agreement (PPA) with Syarikat SESCO Berhad
- a wholly owned subsidiary of Sarawak Energy Berhad2 - to supply power to Phase 3 of the Samalaju
smelter complex (Bintulu Line 3 - 320,000 MT). Under the PPA, Bintulu Line 3 will enjoy long-term
access to electricity at competitive rates, thus making the investment highly viable. Costing USD320
mil (approximately RM1.32 bil), Bintulu Line 3 is expected to begin construction in 4Q 2019 and
commence production in 2021.

Press Metal has also signed a memorandum of understanding (MOU) with PT Bintan Alumina Indonesia
(PT BAI) and its direct and indirect shareholders, i.e. Shandong Nanshan Aluminium Co Ltd,3 Redstone
Alumina International Pte Ltd and PT Mahkota Karya Utama. PT BAI is constructing a 1.0 mil MT
alumina refinery complex (Bintan alumina project) on Bintan Island, Indonesia. Currently 20%
completed, plans are afoot to add a second phase (additional 1.0 mil MT), subject to regulatory
approval. Press Metal plans to subscribe for 25% of PT BAI’s shares, which will entitle it to 500,000 MT
of the alumina produced. The Group also intends to lock in a further 1.0 MT under a long-term supply
contract. Together with the earlier stake in JAA, Press Metal will have access to sufficient alumina to
supply 80% of the annual requirements of its enlarged 1.08 mil MT aluminium smelting capacity.

1
South32 is a mining and metals company headquartered in Perth, Western Australia. It was spun off from BHP Billiton on 25
May 2015.
2
Sarawak Energy Berhad’s RM15 bil Sukuk Musyarakah Programme (2011/2036) is rated AA1/Positive by RAM.
3
Shandong Nanshan Aluminium Co Ltd is an integrated aluminium producer and stands among the top 500 companies in China.

Press Metal Aluminium Holdings Berhad 2

RAM Ratings | Corporate Ratings

Although the MOU is non-binding and subject to negotiations as well as due diligence, we have factored
in an investment outlay of USD300 mil (approximately RM1.24 bil) into our financial projections.

Listed on Bursa Malaysia in 1993, Press Metal is helmed by Tan Sri Dato’ Paul Koon Poh Keong, who
is supported by an experienced management team. He and his family members collectively own
55.59% of the Group.4

Rating Drivers

+ South-East Asia’s largest producer of primary aluminium. Press Metal operates two of the
three aluminium smelters in South-East Asia. Its Mukah and Samalaju smelters, with a combined
capacity of 760,000 MT, are much larger than the only other producer, i.e. PT Indonesia Asahan
Aluminium (PT Inalum), which owns the 260,000 MT Asahan smelter in North Sumatra. The
Group’s Sarawak-based operations allow it to tap the rising demand for aluminium from Asia (ex-
China), from where it derives approximately 60% of its revenue. The other main market for its
products is Europe, which contributes some 35% of the Group’s turnover.

+ Among lowest-cost producers of primary aluminium. Supported by competitively priced

power from mainly hydroelectric sources, Press Metal’s production costs sit comfortably in the
first quartile of the global primary aluminium cost curve. Long-term PPAs with Sarawak Energy
will ensure its competitiveness in the long run. The Group’s low costs will help it ride out the
troughs in aluminium prices, as reflected by its relatively stable operating margins. The Group’s
operating profit before depreciation, interest and tax (OPBDIT) margin has been largely
maintained between 14% and 17%. With the completion of Bintulu Line 3, Press Metal is poised
to enjoy greater economies of scale.

+ Strong cashflow and debt-servicing ability. In the last three years, Press Metal’s robust
profitability has been translating into RM1.30 bil to RM1.45 bil of annual funds from operations
(FFO). Despite the requisite heavy working capital requirements, the Group has been
consistently recording a positive operating cashflow. Besides its production cost advantage,
Press Metal’s effective tax rate is also much lower than the statutory corporate rate due to tax
exemptions for its highly profitable Samalaju smelter operations, which will enjoy pioneer status
until end-2027.5 As such, the Group’s debt-servicing indicators has been robust during this
period, with an FFO debt coverage of 0.38 to 0.49 times. Although Press Metal will assume
additional debt for investment purposes in the near term, it is still expected to maintain a strong
FFO debt coverage of at least 0.3 times.

- Hefty debt load to fund investments. Given the sizeable funding requirements of Bintulu Line
3 and its stake in the Bintan alumina project, we expect Press Metal’s debt level to peak at
RM4.24 bil by end-December 2020 (end-June 2019: RM3.63 bil). Although these investments
are significant, their funding needs will be spread over three years, supplemented by internal
funds. We expect Press Metal to maintain its gearing ratio at around 0.9 times, before it improves
to about 0.7 times by FY Dec 2021 - after the commissioning of Bintulu Line 3. Meanwhile, the
Group’s debt-to-OPBDIT ratio - another measure of financial leverage - is envisaged to stay
strong at below 3.5 times (end-December 2018: 2.2 times).

4
As at 1 April 2019.
5
In July 2014, the Malaysian Investment Development Authority (MIDA) granted Press Metal the right to apply for another five
years of pioneer status when its current term ends in December 2022. RAM understands that the application is mainly procedural
and the Group has already fulfilled the minimum investment criteria for the extension.

Press Metal Aluminium Holdings Berhad 3

RAM Ratings | Corporate Ratings

- Aggressive investment plans. Although the Group’s investments have been gradual, it is now
accelerating its momentum amid the emergence of good opportunities. While all its investments
have strategic merit and are viable, undertaking three major projects in close succession will
somewhat strain its credit metrics in the near term. This will render Press Metal more susceptible
to external shocks and unexpected execution issues vis-à-vis its investments. While the
management has intimated that the Group is unlikely to undertake more major investments in
the medium term and will be able to significantly reduce its debts after the completion of its current
projects, we expect Press Metal to still be on the lookout for new opportunities when more debt
headroom becomes available.

- Venture into alumina refining entails new risks. The alumina refining process produces toxic
red sludge, which needs to be properly treated and stored to minimise environmental pollution.
Any environmental breaches could affect the value of Press Metal’s investments. That said, we
note that established players are operating the Worsley refinery (Australia’s South32) and
developing the Bintan refinery (China’s Shandong Nanshan Aluminium Co Ltd). Meanwhile, the
Group’s Bintan refinery is also exposed to Indonesia’s still-evolving legal framework and policies
on commodity exports as well as issues with land acquisition. Despite the risks involved, Press
Metal’s alumina refinery investments are crucial towards ensuring security of alumina supply
during shortages, such as experienced in 2018.

- Challenging industry dynamics. Producers are exposed to volatile aluminium prices,

availability and prices of raw materials, rising energy costs, and trade barriers. Aluminium prices
have been declining since mid-2018, weighed down by the US-China trade war and the mounting
risk of an economic slowdown. In 2018, alumina decoupled from its long-term pricing relationship
with aluminium due to a supply interruption at Brazil’s Alunorte refinery – the world’s largest - and
the US’s sanctions on Russia’s United Company RUSAL. Alumina prices have since recovered
as Alunorte has ramped up its production and after the US lifted sanctions on RUSAL. Many
aluminium producers are loss-making at the present price levels but adjustments to production
capacity will take time. Due to its energy-intensive nature, this industry may be subject to
increasing regulations on emissions.

Rating Outlook: Stable

▪ The rating outlook reflects our expectation that Press Metal will be able to maintain its competitive
cost structure and healthy debt-servicing ability. We also do not envisage the Group to undertake
any significant investment apart from Bintulu Line 3 and the Bintan alumina project in the next
three years, thereby limiting any further deterioration in its credit metrics.

▪ The rating takes into account the strong commercial viability of Bintulu Line 3, underpinned by
Press Metal’s access to competitive electricity tariff via long-term PPAs. Besides, execution risk
is manageable given the Group’s track record of having successfully commissioned Bintulu Lines
1 and 2. Press Metal will construct Bintulu Line 3 according to the same specifications. Once
completed, the Samalaju smelter complex will have a total capacity of 960,000 MT, thereby
boosting its economies of scale. The Group’s stronger cashflow will allow it to lower its gearing
ratio to a more manageable level of below 0.7 times by end-December 2021.

Press Metal Aluminium Holdings Berhad 4

RAM Ratings | Corporate Ratings

Rating Triggers

▪ Upside potential: There is little possibility of an upgrade in the near term as Press Metal will be
making significant investments through the next three years, and its credit metrics will come
under some pressure during this period. In the longer term, a proven operating track record on
an enlarged scale and better integration of input sourcing may warrant an upward revision of the
ratings. We highlight that the improved business profile will have to be accompanied by a
sustained FFO debt coverage ratio of at least 0.35 times, and a gearing ratio of less than 0.50
times.

▪ Downward pressure: The ratings may come under pressure in the event of unexpected execution
problems related to the commissioning of Bintulu Line 3 and the Bintan alumina project, which
may bump up Press Metal’s debt well, along with delayed cashflow from the projects. A persistent
decline in aluminium prices that is beyond our expectations, excessive dividend distributions, and
unforeseen capex and investments could also weaken its credit metrics. The Group’s inability to
keep its FFO debt coverage at no less than 0.25 times or to lower its gearing ratio to below 0.70
times in the medium term could also lead to a reassessment of its ratings.

Peer Comparison

Table 1: Peer comparison

Press Metal Kaiser Aluminum Corp Century Aluminum Co

Ratings AA3/Stable Not rated Not rated
FY Dec 2017 Dec 2018 Dec 2017 Dec 2018 Dec 2017 Dec 2018
Revenue (USD mil) 1,901.5 2,272.5 1,397.5 1,585.9 1,589.1 1,893.2
OPBDIT (USD mil) 314.8 332.0 213.5 223.2 215.5 31.1
Cash and cash equivalent (USD 64.0 48.1 234.8 162.3 168.0 39.7
mil)
Total debt (USD mil) 772.5 722.3 227.2 299.2 407.9 431.8
Total equity (USD mil) 733.9 973.8 762.1 765.4 829.6 762.2
OPBDIT margin (%) 16.6 14.6 15.3 14.1 13.5 1.6
Gearing ratio (times) 1.1 0.7 0.3 0.4 0.5 0.6
Net gearing ratio (times) 1.0 0.7 (0.0) 0.2 0.3 0.5
Debt-to-OPBDIT (times) 2.3 2.2 1.1 1.3 1.9 13.9
FFO debt coverage ratio (times) 0.4 0.5 0.8 0.7 0.3 0.1
China Hongqiao Group Aluminum Corp of
Ltd China Ltd
Ratings Not rated Not rated
FY Dec 2017 Dec 2018 Dec 2017 Dec 2018
Revenue (USD mil) 14,341.0 13,114.1 27,820.6 27,700.7
OPBDIT (USD mil) 3,119.4 2,695.3 2,206.6 2,178.8
Cash and cash equivalent (USD 3,369.7 182.7 4,611.3 3,272.9
mil)
Total debt (USD mil) 8,558.8 6,913.3 15,871.5 15,633.3
Total equity (USD mil) 8,178.8 9,104.7 10,103.8 10,399.9
OPBDIT margin (%) 21.8 20.6 7.9 7.9
Gearing ratio (times) 1.0 0.8 1.6 1.5
Net gearing ratio (times) 0.6 0.7 1.1 1.2
Debt-to-OPBDIT (times) 2.7 2.6 7.2 7.2
FFO debt coverage ratio (times) 0.3 0.3 0.1 0.1

Press Metal Aluminium Holdings Berhad 5

RAM Ratings | Corporate Ratings

Press Metal’s low costs are reflected by its superior operating margins, even when compared to bigger
and more integrated producers, except China Hongqiao Group Ltd. Although the smelting operations
of Aluminium Corp of China Ltd (CHALCO) are loss-making, it is still profitable due to contributions from
alumina refining. China Hongqiao and CHALCO are among the world’s largest producers of primary
aluminium.

Business Risk Profile

Table 2: Segmental revenue

FY Dec 2015 2016 2017 2018
RM mil % RM mil % RM mil % RM mil %
Smelting & extrusion 4,089.42 94.6 6,031.63 90.7 7,421.37 90.8 8,307.98 90.6
Trading 102.74 2.4 478.92 7.2 655.48 8.0 789.04 8.6
Others 129.11 3.0 138.91 2.1 99.28 1.2 73.10 0.8
Total 4,321.27 100.0 6,649.45 100.0 8,176.13 100.0 9,170.12 100.0

Table 3: Segmental operating profit*

FY Dec 2015 2016 2017 2018
RM mil % RM mil % RM mil % RM mil %
Smelting & extrusion 327.51 96.9 855.30 103.7 1,015.26 100.7 1,080.05 101.1
Trading 8.49 2.5 14.25 1.7 21.95 2.2 25.79 2.4
Others 1.89 0.6 (44.86) (5.4) (28.83) (2.9) (37.34) (3.5)
Total 337.89 100.0 824.69 100.0 1,008.38 100.0 1068.50 100.0
* Divisional operating profit differs slightly from the OPBIT figures computed by RAM due to the exclusion of other income, as
well as other classification differences.

Table 4: Segmental operating margins

FY Dec (%) 2015 2016 2017 2018
Smelting & extrusion 8.0 14.2 13.7 13.0
Trading 8.3 3.0 3.3 3.3
Others 1.5 n.m n.m n.m.
Total 7.8 12.4 12.3 11.7

Table 5: Segmental revenue by geography

FY Dec 2015 2016 2017 2018
RM mil % RM mil % RM mil % RM mil %
Malaysia 1,168.98 27.1 1,606.60 24.2 1,338.48 16.4 2,330.05 25.4
Asia 1,370.47 31.7 2,610.50 39.3 3,212.77 39.3 3,336.52 36.4
Europe 1,599.00 37.0 2,217.79 33.4 3,386.99 41.4 3,206.86 35.0
America 108.12 2.5 122.45 1.8 143.33 1.8 192.10 2.1
Oceania 74.70 1.7 92.13 1.4 94.56 1.1 104.59 1.1
Total 4,321.27 100.0 6,649.45 100.0 8,176.13 100.0 9,170.12 100.0

▪ Smelting operations chief revenue and profit contributor. The Group’s smelting & extrusion
division contributes more than 90% of its revenue and almost the entirety of its operating profits.
Sale of primary aluminium products (aluminium ingots, billets and wire rods) to traders and
extruders make up the bulk of turnover. Sale of extrusion products to end-user industries in
Malaysia and China typically account for around RM1 bil of annual revenue but has negligible
contributions to the bottom line.

▪ Increasing demand for aluminium. Demand for primary aluminium is fairly diversified. The
construction and transportation sectors typically consume around half of global primary
aluminium production, with the remainder quite evenly spread between the electrical, packaging,
machinery and consumer durables sectors. Between 2017 and 2022, primary aluminium demand
is expected to grow at a CAGR of around 4%, driven by demographics (rising population, income
per capita and urbanisation) and substitution of other metals (copper for electricity transmission,

Press Metal Aluminium Holdings Berhad 6

RAM Ratings | Corporate Ratings

and steel for transportation and consumer products). In the short-term, the US-China trade war
and weak global economic growth dampen the demand outlook. Over the longer term (2030 and
beyond), secondary (recycled) aluminium consumption may displace some primary aluminium
demand as aluminium scrap becomes more available 6.

Figure 1: Estimated global aluminium consumption by sector (2018)

Others, 7%
Consumer durables,
7%
Transportation, 28%

Machinery, 10%

Packaging, 12%

Construction, 23%
Electrical, 13%

Source: AME Research

▪ High entry barriers limit supply growth. Building facilities with sufficient economies of scale is
very costly. Aluminium smelting is highly energy-intensive and access to competitive and reliable
power (hydropower/geothermal) is limited. Also, location of the power source may affect project
economics due to logistics costs. As a result, CAGR of new capacity growth is expected to be
around 3.2% from 2017 to 20227, which is slower than demand growth.

▪ Challenging industry dynamics. Producers are exposed to volatile selling prices, availability
and price of raw materials, rising energy costs, and trade barriers. Supply-demand fundamentals
aside, speculative activity has contributed to the price swings of the commodity. A significant
proportion of producers may be loss-making during periods of low prices, but adjustments to
production capacity may be slow. Due to its high energy intensity, the industry may be subject to
increasing regulations on emissions. However, more stringent emissions regulations on the
transportation sector could increase demand for the metal due to its light weight.

▪ Prices trending lower despite tight supply. The supply-demand dynamics have been
favourable in 2018, with a supply deficit of 1.4 million MT. This has caused global inventories to
fall to around 72 days consumption. 2019 is projected to end with another year of supply deficit
of 1.0 MT, bringing inventory down to 63 days consumption 8. Nevertheless, aluminium prices
have been falling since mid-2018, weighed down by the US-China trade war and increasing risks
of an economic slowdown. Average London Metals Exchange (LME) 3-month futures price for
1H 2019 was USD1,848/MT, down from USD2,114/MT in 2018. Spot prices have somewhat
stabilised and the LME aluminium futures prices projects a price recovery to above USD2,000/MT
over the medium term.

6
Wood Mackenzie, Global aluminium long-term outlook 1Q 2019.
7
Wood Mackenzie, Global aluminium long-term outlook 1Q 2019.
8
Wood Mackenzie, Global aluminium long-term outlook 1Q 2019.

Press Metal Aluminium Holdings Berhad 7

RAM Ratings | Corporate Ratings

Figure 2: Average aluminium prices (2004–1H 2019)

2,800.00

2,600.00

2,400.00

2,200.00

2,000.00

1,800.00

1,600.00

1,400.00
1H
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
2019
USD/MT 1,723 1,901 2,598 2,663 2,624 1,702 2,199 2,424 2,053 1,888 1,894 1,683 1,609 1,979 2,114 1,848

Source: LME
Annual averages derived from monthly average prices of 3-month futures contracts.

Figure 3: LME official price curve

2,100
2,050 2,053
2,000
1,950 1,965

1,900
USD/MT

1,875
1,850
1,800
1,771
1,750 1,739
1,700
1,650
1,600
1,550
Spot 3-months Dec-20 Dec-21 Dec-22

Source: LME
Note: Bid prices on 5 August 2019.

▪ Normalised global alumina supply. Following the ramp up of alumina production at Brazil’s
Alonorte refinery, alumina prices are trading in the normal range relative to aluminium prices (15-
20%). Alumina prices had shot up to around 30% of aluminium price at its peak in 2018, which
put a squeeze on smelter margins. Over the next 5 years, global alumina supply is expected to
adequately cater to growth in demand for aluminium on the back of brownfield expansions and
new greenfield projects. Global alumina production is expected to grow 8.5% and 8.0% y-o-y in
2019 and 20209.

9
Wood Mackenzie, Global aluminium long-term outlook 1Q 2019.

Press Metal Aluminium Holdings Berhad 8

RAM Ratings | Corporate Ratings

Figure 4: Alumina price trend

Sources: Platts, Bloomberg

PAX = Platts alumina index
% of LME (3m) = Prices of alumina relative to aluminium three-month futures contracts.

▪ South-East Asia’s largest producer of primary aluminium. Press Metal operates two of the
three aluminium smelters in South-East Asia. Its Mukah and Samalaju smelters, with a combined
capacity of 760,000 MT, are much larger than PT Inalum, which operates the 260,000 MT Asahan
smelter in North Sumatra. Another 1.03 mil MT of capacity is expected to come on-stream in this
region: the new Tran Hong Quan smelter in the southern central highlands of Vietnam (450,000
MT), Bintulu Line 3 (320,000 MT) and the expansion of the Asahan smelter (260,000 MT). The
increasing demand in South-East Asia (a net importer of primary aluminium) in envisaged to be
able to absorb the incoming capacity. Press Metal’s Sarawak-based operations will allow it to tap
the growing demand for aluminium in Asia (ex-China), from where it derives approximately 60%
of its revenue. The other main market for its products is Europe, which contributes about 35% of
the Group’s turnover.

▪ Low-cost producer of primary aluminium. Press Metal’s production costs constitute raw
materials (55%), electricity (35%) and other expenses (10%).10 Alumina accounts for the bulk of
its input costs; its price is traditionally indexed to aluminium, thus providing some natural hedge.
Supported by competitively priced power from mainly hydroelectric sources, Press Metal’s
production costs lie comfortably within the first quartile of the global primary aluminium cost
curve. Long-term PPAs with Sarawak Energy will ensure the Group’s competitiveness in the long
run. Press Metal’s low costs will help it ride out the troughs in aluminium prices, as evident from
its relatively stable operating margin. At the current LME aluminium cash price of around
USD1,750/MT, about half of the world’s aluminium smelters are estimated to be incurring losses.

10
Based on estimates for Bintulu Lines 1 and 2.

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Table 6: Press Metal’s production cost of molten aluminium

FY Dec 2014 2015 2016 2017 2018 Q1 2019
USD/MT 1,619 1,763 1,338 1,511 1,723 1,657
Source: Press Metal

Figure 5: Estimated cost competitiveness against global peers

Source: AME Research

▪ Cost advantage mainly from Samalaju smelter. Of Press Metal’s two smelters, the one in
Samalaju - which is operating via 400 kA reduction technology - is deemed a first quartile
operation. The Mukah smelter, operating under 215 kA reduction technology, lies within the
second quartile of the cost curve.11 In addition, the Samalaju smelter is located next to port
facilities, which greatly reduces the cost of transporting inbound raw materials and exported
finished goods. On the other hand, the Mukah smelter is 100 km away from port facilities, hence
incurs heftier logistics costs. Since 80% of Press Metal’s production stems from the Samalaju
smelter, this places the Group within the first quartile overall. With Bintulu Line 3 coming on-
stream, the Samalaju smelter is poised to reap greater economies of scale.

Table 7: PPAs with Sarawak Energy

Plant Quantity (MW) Tenure (years) Expiry
Mukah 202 25 2034
Bintulu Line 1 480 25 2037
Bintulu Line 2 500 25 2040
Bintulu Line 3 300 + 200* 15 2034
Source: Press Metal
* On reasonable endeavor basis

▪ Bintulu Line 3 expected to obtain sufficient power. On 31 July 2019, Press Metal executed a
PPA with Sarawak Energy for the sale and purchase of up to 500 MW of electric power for Bintulu
Line 3. Although the PPA will span 15 years as opposed to the 25-year tenures of earlier PPAs,
it is still considered relatively long; tariffs start at a meaningful discount to prevailing industrial
rates. Power is expected to be drawn in two stages, with the 300 MW tranche to be first drawn
down by October 2020 and the remaining 200 MW tranche as and when it is made available, on
a “reasonable endeavour" basis, by Sarawak Energy. While the timing and availability have not
been fixed for the second tranche of energy, we do not expect significant delays as Sarawak
Energy will be adding 1,466 MW capacity from 2019 to 2021. RAM views that it is quite likely that
Bintulu Line 3 will be able to obtain sufficient power to operate at full capacity, barring any

11
AME Research estimates.

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RAM Ratings | Corporate Ratings

unforeseen circumstances. Should Sarawak Energy be unable to supply the 200 MW, the PPA
allows Press Metal to novate its allocation under Mukah Smelter’s PPA (202 MW) to Bintulu Line
3. The novation will minimise the financial impact to Press Metal as the Samalaju smelter is more
cost-efficient.

Table 8: Targeted commercial operation dates (CODs) of Sarawak Energy’s major projects
Installed capacity
Location Plant type Targeted COD
(MW)
Phase 1 of Samalaju Park (by 2021)
Balingian Coal 624 2019
Tg Kidurong (Block 1) CCGT 421 2020
Tg Kidurong (Block 2) CCGT 421 2021
Subtotal 1,466
Phase 2 of Samalaju Park (beyond
2021)
Baleh Hydro 1,285 2025
Total 2,751
Sources: SEB and RAM’s calculations. Please refer to our latest rating rationale on Sarawak Energy, published on 14 August 2018
CCGT = combined-cycle gas turbine

▪ Shifting to more value-added products. The ingots produced by Press Metal meet the strict
quality standards imposed by the LME. Besides, the Group has traditionally been able to charge
higher selling prices relative to prevailing LME cash prices. Due to its proximity to major
aluminium consumers in Asia, Press Metal’s products enjoy a delivery premium that reflects its
shorter delivery time and lower handling costs. In addition, alloy ingots, billets and wire rods will
attract an additional charge for value-added processing. In the past, Press Metal had traditionally
sold more than 60% of its output in the form of the basic ingot, P1020. Going forward, the Group
aims to sell 60% of its output as value-added products. After integrating PMAR’s capacity, Press
Metal has emerged as the market leader for wire rods in South-East Asia. A higher proportion of
value-added products will help it mitigate the impact of falling base prices of aluminium to some
extent.

Table 9: Aluminium product sales mix

FY Dec (%) 2014 2015 2016 2017 2018 Q1 2019
Basic ingot P1020* 67.05 50.21 68.30 69.57 56.01 47.69
Alloy ingot A356.2 11.00 20.70 14.79 13.07 13.54 12.73
Billets 21.95 29.08 16.90 15.74 17.63 23.01
Wire rod - - - 1.63 12.82 16.57
Source: Press Metal
* Aluminium purity of at least 99.7%, with maximum of 0.1% silica and 0.2% iron.

Table 10: Weighted-average selling prices by product

FY Dec (USD/MT) 2014 2015 2016 2017 2018 Q1 2019
Basic ingot P1020 2,169 1,969 1,712 2,061 2,206 1,950
Alloy ingot A356.2 2,376 2,151 1,823 2,166 2,361 2,112
Billets 2,361 2,056 1,860 2,220 2,340 2,095
Wire rod - - - 2,212 2,340 2,063
Source: Press Metal

▪ High capacity utilisation rate vital for energy efficiency. Smelter production has to be
continuous throughout the year, to ensure that optimal energy consumption. Press Metal
traditionally maintains its utilisation level at above 95%, except when it was hit by a state-wide
power outage in 2013 and during a fire at Bintulu Line 1 in 2015. Both incidents had resulted in
the solidification of pots, thus lengthening downtime and damaging equipment. In both cases,
insurance coverage had mitigated some of its financial losses. To avoid such events in future,
Sarawak Energy will prioritise the restoration of power to Press Metal’s smelters. Given the high
energy consumption of the smelters, Press Metal is Sarawak Energy’s biggest customer.

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Table 11: Capacity utilisation

2014 2015 2016 2017 2018 1Q 2019
(%) (%) (%) (%) (%) (%)
Mukah smelter 92.2 97.7 97.3 98.1 96.7 95.5
Bintulu smelter 96.7 70.6 92.8 99.8 97.1 96.5
Overall 95.4 78.0 93.5 99.5 97.0 96.3
Source: Press Metal

▪ Hedging to ensure revenue visibility. Under its hedging policy, Press Metal can sell forward
up to 65% of its total alumininium production for up to 2 years. This allows the Group to lock in
favourable prices and minimise the volatility of its revenue. The Group has locked in prices for
full production in 2H 2019. For 2020, it has locked in prices for 20% of its annual production
volume. It does not hedge alumina prices as the cost of this input is indexed to aluminium prices.
As aluminium sales are in US dollars, Press Metal uses forward contracts to minimise the impact
of foreign exchange fluctuations on its earnings.

▪ Strategic ties with Sumitomo Corporation. Sumitomo Corporation, one of Japan’s largest
trading companies, owns 20% of the Mukah and Samalaju smelters each. Apart from being a
minority shareholder, Sumitomo is also a major customer of Press Metal, accounting for at least
20% of the latter’s annual top line. Press Metal benefits from Sumitomo’s extensive marketing
expertise and network, which complement the Group’s aluminium manufacturing capabilities.
Press Metal can also capitalise on Sumitomo’s position in the broader aluminium industry, to gain
access to new investment opportunities. For instance, the opportunity to own 50% of JAA had
been through Sumitomo’s ties with the vendor, ITOCHU Corporation. Sojitz Corporation owns
the other 50% of JAA. Both ITOCHU and Sojitz are Japanese trading companies.

▪ Aggressive investment plans. Although investments had been gradual in the past, Press Metal
has been accelerating its investments of late amid good opportunities. While all the investments
have strategic merit and are viable, making three major investments in rapid succession will
somewhat strain its balance sheet in the near term, thus rendering Press Metal more susceptible
to external shocks and unexpected execution issues. While the management has intimated that
Press Metal is unlikely to make other major investments in the medium term and will be able to
significantly reduce its debts after the completion of its current projects, we expect the Group to
still seek new opportunities when there is more headroom for debts.

▪ Investments in alumina refining entail new risks. The alumina refining process yields toxic
red sludge, which needs to be properly treated and stored to minimise environmental pollution.
Any environmental breaches could affect the value of Press Metal’s investments. That said, we
note that established players are operating the Worsley refinery and developing the Bintan
refinery. The Bintan refinery will utilise the dry disposal method, a safer and more environmentally
friendly method to treat the red sludge. Meanwhile, the Group’s investment in the Bintan refinery
is also exposed to Indonesia’s still-evolving legal framework and policies on commodity exports,
as well as issues with land acquisition. Despite the risks involved, Press Metal’s alumina refinery
investments are crucial to ensure security of supply during alumina supply shortages, such as
experienced in 2018.

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RAM Ratings | Corporate Ratings

▪ Environmental risk deemed moderate. The most pertinent ESG risk factor for Press Metal is
environmental risk. The production of primary aluminium is highly energy-intensive; energy is a
substantial cost component. Press Metal’s smelters mainly use energy derived from hydroelectric
sources. The smelting process emits greenhouse gases, i.e. carbon dioxide, hydrogen fluoride
and sulphur dioxide, as well as dust particles. That said, Press Metal has consistently met the
emissions limits imposed by Malaysia’s Department of Environment. For its downstream
extrusion business, the finishing process produces wastewater and sludge. Press Metal safely
disposes of its wastes through licenced waste collectors in Malaysia and China. We have not
observed any breaches of waste management regulations.

Financial Risk Profile

Table 12: Press Metal's key financial indicators

Audited Audited Audited Unaudited Unaudited
FY Dec
2016 2017 2018 1H 2018 1H 2019
Absolute (RM million)
Revenue 6,649.45 8,176.13 9,170.12 4,564.28 4,304.86
OPBDIT 991.67 1,353.5 1,339.79 707.51 538.64
Pre-tax profit 674.83 808.75 870.45 431.66 279.04
Cash and cash equivalent 377.68 259.10 199.05 258.54 199.95
Total debts 3,384.94 3,126.53 2,987.28 3,300.17 3,632.41
Profitability (%)
OPBDIT margin 14.91 16.55 14.61 15.50 12.51
Return on capital employed 13.69 16.45 15.15 15.30 9.65
Capitalisation (times)
Gearing ratio 1.25 1.05 0.74 0.93 0.90
Net gearing ratio 1.11 0.97 0.69 0.87 0.85
Debt-to-OPBDIT 3.41 2.31 2.23 2.33 3.37
Debt-capital ratio 0.55 0.51 0.43 0.48 0.47
Debt coverage (times)
Interest coverage ratio 6.19 6.97 6.97 7.58 5.86
FFO debt coverage ratio 0.38 0.44 0.49 0.43 0.29
OCF debt coverage ratio 0.28 0.13 0.37 0.24 0.20
FOCF debt coverage ratio 0.15 0.07 0.27 0.15 0.14
OCF = Operating cashflow
FOCF = Free operating cashflow

▪ Revenue doubled since fiscal 2014. Press Metal’s top line has been consistently trending
upwards in the last five years. In FY Dec 2016, its revenue jumped 53.9%, fuelled by the
commencement of Bintulu Line 2 (320,000 MT). Revenue in fiscal 2017 and 2018 was lifted a
respective 23.0% and 12.2%, supported by healthier selling prices and product mix.
Nevertheless, we expect weaker revenue in the next two years amid a less rosy outlook on
demand in the near term. Due to lower aluminium prices in 1H FY Dec 2019, the Group’s top line
slipped 5.7% y-o-y to RM4.30 bil.

▪ Relatively resilient margins. Aided by its favourable cost position, the Group’s OPBDIT margins
have ranged between 14% and 17% over the past five years, except for FY Dec 2015 when its
OPBDIT slumped 38.6% y-o-y. During that year, aluminium prices were on the decline, and a fire
incident had resulted in the shutdown of Bintulu Line 1, which caused pots to solidify. Overall
capacity utilization dipped to 78%. Although the price slump continued into FY Dec 2016, Press
Metal’s OPBDIT shot up 156.53% y-o-y to RM991.67 mil, supported by higher capacity utilisation
(93.5%) and the earlier-mentioned commissioning of Bintulu Line 2. In FY Dec 2017 and FY Dec
2018, the Group’ maintained its OPDBIT above RM1.30 bil, supported by high selling prices.

Press Metal Aluminium Holdings Berhad 13

RAM Ratings | Corporate Ratings

However, its OPDBIT margin slipped to 14.61% in FY Dec 2018 due to higher alumina costs
caused by a major supply disruption. OPBDIT margin continued to slip in 1H FY Dec 2019 to
12.51%, dragged down by lower selling prices and still elevated material prices. As raw material
prices normalises in 2H FY Dec 2019, OPBDIT margins should improve to around 14%.

▪ Robust debt-servicing ability. In the last three years, Press Metal’s impressive profit
performance has translated into RM1.30 bil to RM1.45 bil of FFO. Despite its heavy working
capital requirements, Press Metal has consistently been able to achieve positive operating
cashflows. The Group recorded a robust interest coverage of at least 6 times in the last 3 financial
years. On top of its production cost advantage, Press Metal’s effective tax rate is also much lower
than the prevailing corporate tax rate due to the tax exemption for its highly profitable Samalaju
smelter operations, which enjoy pioneer status until end-2027. As such, the Group’s debt-
servicing ability has been steadfast during this period, with its FFO debt coverage hovering
around 0.38 and 0.49 times.

▪ Improved leverage. Since peaking at 1.44 times as at end-December 2015 following the
commissioning of Bintulu Line 2, the Group’s gearing level has been trending downwards, hitting
a low of 0.74 times as at end-December 2018. In terms of its debt-to-OPBDIT coverage, Press
Metal has consistently maintained its ratio below 4 times, except in FY Dec 2015 when the fire
hit earnings and increased debts due to capacity expansion.

▪ Major investments will pressure credit metrics in near term. Due to the large funding
requirements for Bintulu Line 3 and the stake in the Bintan alumina project, we expect Press
Metal’s borrowings to peak at RM4.24 bil by end-December 2020. Although the investments will
be significant, the RM3.72 bil required will be spread over three years, supplemented by internal
funds. The initial issuance from the proposed IMTN Programme will be used to refinance shorter
tenure borrowings and lock in funding costs over the long term12. Should there be pressure on
its credit metrics in fiscal 2019 and 2020, Press Metal could limit dividends to its shareholders to
around RM100 mil per annum (FY Dec 2018: RM253.98 mil). We expect the Group’s gearing
level to be maintained at around 0.9 times while recording a minimum FFO debt coverage of
around 0.3 times. While its gearing is weaker than those of its AA3-rated peers, the Group’s
expected debt-to-OPBDIT ratio of below 3.5 times remains strong. Once Bintulu Line 3 begins
production in FY Dec 2021, Pres Metal’s gearing will improve to a more manageable level of 0.7
times.

Table 13: Expected timing of investments and capex

FY Dec 2019 2020 2021
Bintulu Line 3 309.75 675.00 336.85
Investment in Bintan alumina project 413.00 619.50 206.50
Investment in JAA* 433.28 - -
Advances to JAA** 256.39 - -
Other recurring capex 153.20 159.46 166.07
Total 1,565.61 1,453.96 709.42
* Completed in 1Q FY Dec 2019.
** Assumption of advances from the vendor. The amount is net of RM57.92 mil already repaid post-acquisition.

▪ No significant near-term maturity, adequate liquidity and financial flexibility. Press Metal’s
debt-maturity profile is well spread out until fiscal 2021. The significant number of maturities in
2022 is mainly due to its USD400 mil Senior Notes, issued in 2017. While its annual cashflow is
strong, we expect Press Metal to refinance a portion of the maturing papers. The Group maintains

12
The IMTN is expected to gradually replace debts taken at or guaranteed by Press Metal’s subsidiaries. We do not expect the
percentage of priority debts relative to the estimated total consolidated assets of the Group to exceed 30% going forward.

Press Metal Aluminium Holdings Berhad 14

RAM Ratings | Corporate Ratings

RM200 mil to RM350 mil of cash for its operations, which we deem sufficient because of its strong
cashflow. The bulk of its short-term debts comprises self-liquidating trade lines. The Group has
access to trade and revolving credit facilities amounting to around RM2.4 bil.

Table 14: Debt-maturity profile

End-December 2018 (RM mil)
Revolving trade/credit facilities 626.35
Due in 2019 332.21
Due in 2020 132.16
Due in 2021 173.81
Due in 2022 1,674.57
Due in 2023 30.47
Due after 2023 0.1
Total 2,970.50
Note: The figures exclude amounts due to related parties, hire-purchase, and lease commitments, which are negligible.

Press Metal Aluminium Holdings Berhad 15

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Corporate Information

Date of Incorporation 1986

Commencement of Business 1986

Major Shareholders as at 1 April 2019 Tan Sri Dato’ Koon Poh Keong (40.23%)*
Koon Poh Ming (9.21%)*
Koon Poh Weng (6.15%)*

* Includes indirect interests held by their spouses

Directors Dato’ Wira (Dr) Megat Abdul Rahman bin Megat Ahmad
(Chairman)
Tan Sri Dato’ Paul Koon Poh Keong
Dato’ Koon Poh Tat
Koon Poh Ming
Koon Poh Weng
Koon Poh Kong
Tan Heng Kui
Loo Lean Hock
Noor Alina binti Mohamad Faiz
Lim Hun Soon @ David Lim

Auditor KPMG

Listing Main Market of Bursa Malaysia

Key Management Tan Sri Dato’ Koon Poh Keong (Group Chief Executive Officer)
Koon Poh Ming (Executive Vice Chairman)
Dato’ Koon Poh Tat (Executive Director)
Koon Poh Weng (Executive Director)
Koon Poh Kong (Executive Director)
David Tan Hung Hoe (Head of Corporate Affairs)
Loo Tai Choong (Group Financial Controller)
Choa Wei Keong (Group General Manager – Smelting Division)
Lim Heng Kam (Country Head – China)
Andrew David Brace (Country Head – UK)
Paul Ingram (Country Head – Australia)
Keith Burlingame (Country Head – North America)

Major Subsidiaries Press Metal Bintulu Sdn Bhd (80%)

Press Metal Sarawak Sdn Bhd (80%)
Press Metal Aluminium Rods Sdn Bhd (80%)
Press Metal Berhad (100%)
Press Metal International Limited (100%)

Press Metal Aluminium Holdings Berhad 16

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Appendix
Figure 1: Press Metal’s brief corporate structure

Press Metal
Aluminium Holdings
Berhad

80% 80% 100% 100%

Press Metal Bintulu Press Metal Press Metal (HK) Ltd PMIM Extrusion Sdn
Sdn Bhd Sarawak Sdn Bhd Bhd

100% 100% 100%

Press Metal Press Metal Press Metal Berhad

Aluminium Rods Sdn International Ltd
Bhd

Press Metal Aluminium Holdings Berhad 17

RAM Ratings | Corporate Ratings

Financials
unaudited
STATEMENT OF FINANCIAL POSITION (RM million) 31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18 30-Jun-19
Property, Plant & Equipment 3,598.41 5,194.39 5,186.24 4,929.97 4,842.24 4,766.53
Investments in Associates/Jointly-Controlled Entities 38.43 41.64 44.02 44.88 138.02 586.85
Deferred Tax Assets 132.72 99.43 67.93 34.33 0.00 0.00
Other Investments & Non-Current Assets 7.88 8.14 11.60 56.22 19.92 27.84
Goodwill & Intangible Assets 10.50 10.50 10.50 10.50 39.13 39.13
Total Non-Current Assets 3,787.94 5,354.10 5,320.30 5,075.90 5,039.31 5,420.34
Inventory 555.19 869.89 1,011.30 1,168.62 1,539.50 1,362.18
Trade Receivables 616.34 651.69 796.74 878.75 942.81 945.17
Other Current Assets 143.27 192.88 195.43 513.23 619.27 904.40
Amounts Due from Holding/Related Companies & Directors 0.00 0.00 0.00 0.00 0.00 0.00
Amounts Due from Associates/Jointly-Controlled Entities 0.00 0.39 0.39 2.04 1.59 0.00
Cash & Bank Balances 355.16 305.12 377.68 259.10 199.05 199.95
Money Market Instruments 0.00 0.00 0.00 0.00 0.00 0.00
Total Current Assets 1,669.96 2,019.96 2,381.54 2,821.74 3,302.22 3,411.69
Total Assets 5,457.89 7,374.06 7,701.84 7,897.63 8,341.53 8,832.04
Equity Share Capital 550.40 649.42 0.00 990.64 1,046.90 1,085.80
Equity-Like Hybrid Capital 0.00 0.00 0.00 0.00 0.00 0.00
Reserves 69.41 17.08 751.20 (543.28) 12.22 (107.17)
Retained Profits/(Accumulated Losses) 1,256.92 1,272.66 1,455.10 1,823.28 2,177.59 2,284.89
Non-Controlling Interests 304.04 428.56 510.05 699.80 790.87 793.06
Total Equity 2,180.77 2,367.72 2,716.34 2,970.44 4,027.59 4,056.58
Short-Term Private Debt Securities 22.47 0.00 0.00 0.00 0.00 0.00
Amounts Due to Holding/Related Companies & Directors 0.00 0.00 0.00 0.00 0.00 0.00
Amounts Due to Associates/Jointly-Controlled Entities 3.59 2.23 2.64 2.77 2.64 0.00
Other Short-Term Debts 1,307.00 1,424.87 1,602.14 937.36 964.11 1,083.78
Trade Payables 493.59 545.21 817.27 566.41 719.49 496.19
Taxation 1.41 2.48 4.69 7.85 7.75 7.60
Dividends Payable 0.00 0.00 0.00 0.00 0.00 0.00
Other Current Liabilities 310.84 912.40 634.10 558.39 394.16 312.99
Total Current Liabilities 2,138.89 2,887.18 3,060.83 2,072.77 2,088.14 1,900.56
Long-Term Liabilities 117.28 129.28 144.50 668.02 205.27 326.26
Debt-Like Hybrid Capital 0.00 0.00 0.00 0.00 0.00 0.00
Long-Term Private Debt Securities 127.31 0.00 0.00 1,593.96 1,634.11 0.00
Other Long-Term Debts 893.65 1,989.88 1,780.16 592.44 386.42 2,548.63
Total Non-Current Liabilities 1,138.23 2,119.16 1,924.66 2,854.42 2,225.80 2,874.89
Total Liabilities 3,277.12 5,006.34 4,985.49 4,927.19 4,313.94 4,775.46
Total Equity + Total Liabilities 5,457.89 7,374.06 7,701.84 7,897.63 8,341.53 8,832.04

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Financials
unaudited
STATEMENT OF COMPREHENSIVE INCOME (RM million) 31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18 30-Jun-19
Revenue 4,091.02 4,321.27 6,649.45 8,176.13 9,170.12 4,304.86

Operating Profit/(Loss) before Depreciation, Interest & Tax 629.52 386.56 991.67 1,353.50 1,339.79 538.64
Depreciation & Amortisation (242.47) (257.42) (365.19) (401.19) (389.46) (183.89)
Operating Profit/(Loss) before Interest & Tax 387.06 129.14 626.49 952.31 950.32 354.75
Finance Costs (153.47) (97.73) (160.30) (194.21) (192.09) (91.95)
Debt-Related Foreign Exchange Gain/(Loss) 0.00 0.00 0.00 0.00 0.00 0.00
Operating Profit/(Loss) before Tax 233.59 31.42 466.19 758.10 758.23 262.81
Other Income/(Loss) 68.65 198.42 205.67 47.77 109.92 8.18
Non-Recurring Items 0.00 0.00 0.00 0.00 0.00 0.00
Share of Associates/Jointly-Controlled Entities Profits/(Losses) 1.83 2.14 2.97 2.89 2.31 8.06
Pre-Tax Profit/(Loss) 304.07 231.98 674.83 808.75 870.45 279.04
Taxation (38.10) (71.01) (69.06) (62.31) (97.59) (16.61)
Net Profit/(Loss) 265.97 160.97 605.77 746.44 772.87 262.43
Other Comprehensive Income/(Loss) 8.09 (158.92) (123.18) (269.76) 577.56 (154.83)
Total Comprehensive Income/(Loss) 274.05 2.05 482.59 476.69 1,350.42 107.60
Additional Disclosure:
Net Profit Attributable to Non-Controlling Interests 51.06 28.62 122.20 153.06 153.93 44.44
Dividends - Ordinary Shares & Preference Shares 92.06 116.71 134.71 225.19 253.98 110.70

unaudited
STATEMENT OF CASHFLOW (RM million) 31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18 30-Jun-19
Pre-Tax Profit/(Loss) 304.07 231.98 674.83 808.75 870.45 279.04
Adjustments 506.36 451.02 631.94 592.00 613.77 261.69
Operating Profit/(Loss) before Working Capital Changes 810.43 682.99 1,306.77 1,400.76 1,484.23 540.73
Tax Paid (21.68) (16.55) (11.95) (27.72) (31.37) (10.61)
Funds from Operations 788.75 666.44 1,294.83 1,373.04 1,452.86 530.12
Changes in Working Capital (376.77) 300.82 (358.43) (979.07) (343.00) (159.52)
Other Income/(Expenses) 0.00 0.00 0.00 0.00 0.00 0.00
Net Cashflow from Operating Activities 411.98 967.26 936.40 393.97 1,109.86 370.60
Capital Expenditure (271.21) (1,814.82) (428.29) (190.71) (292.79) (108.81)
Free Operating Cashflow 140.76 (847.56) 508.11 203.26 817.07 261.79
Other Investing Outflows (1.83) 0.00 (29.27) (0.00) (185.19) (756.41)
Investing Inflows 533.04 136.12 6.29 21.95 26.34 9.48
Pre-Financing Cashflow 671.97 (711.44) 485.13 225.21 658.23 (485.14)
Interest Payments (150.00) (96.44) (144.85) (182.11) (180.76) (91.95)
Net Changes in Borrowings (334.18) 872.33 (120.33) 56.36 (297.72) 610.93
Dividend Payments (97.16) (116.71) (134.71) (225.19) (253.98) (110.70)
Others 7.82 (38.79) (29.87) 42.53 68.52 49.90
Net Increase/(Decrease) in Cash & Cash Equivalents 98.45 (91.04) 55.38 (83.21) (5.72) (26.95)
Opening Cash Balance 220.01 318.47 227.42 282.80 199.60 193.88
Closing Cash Balance 318.47 227.42 282.80 199.60 193.88 166.93

Press Metal Aluminium Holdings Berhad 19

RAM Ratings | Corporate Ratings

Financials
unaudited
KEY RATIOS 31-Dec-14 31-Dec-15 31-Dec-16 31-Dec-17 31-Dec-18 30-Jun-19
PROFITABILITY (%):
OPBDIT Margin 15.39% 8.95% 14.91% 16.55% 14.61% 12.51%
OPBIT Margin 9.46% 2.99% 9.42% 11.65% 10.36% 8.24%
Pre-Tax Profit Margin 7.43% 5.37% 10.15% 9.89% 9.49% 6.48%
Net Profit Margin 6.50% 3.73% 9.11% 9.13% 8.43% 6.10%
Return on Capital Employed 10.09% 5.70% 13.69% 16.45% 15.15% 9.65%
CAPITALISATION (TIMES):
Gearing Ratio 1.08 1.44 1.25 1.05 0.74 0.90
Net Gearing Ratio 0.92 1.31 1.11 0.97 0.69 0.85
Debt-Capital Ratio 0.52 0.59 0.55 0.51 0.43 0.47
DEBT COVERAGE (TIMES):
Interest Coverage Ratio 4.10 3.96 6.19 6.97 6.97 5.86
OPBDIT Debt Coverage Ratio 0.27 0.11 0.29 0.43 0.45 0.30
Funds from Operations Debt Coverage Ratio 0.34 0.20 0.38 0.44 0.49 0.29
Operating Cashflow Debt Coverage Ratio 0.18 0.28 0.28 0.13 0.37 0.20
Free Operating Cashflow Debt Coverage Ratio 0.06 (0.25) 0.15 0.07 0.27 0.14
LIQUIDITY (TIMES):
Current Ratio 0.78 0.70 0.78 1.36 1.58 1.80
Quick Ratio 0.52 0.40 0.45 0.80 0.84 1.08
Cash and Cash Equivalents to Short-Term Debts 0.27 0.21 0.24 0.28 0.21 0.18
Short-Term Debts to Total Debts (%) 56.63% 41.76% 47.41% 30.07% 32.36% 29.84%
CASH CYCLE (DAYS)
Receivables Cycle 54.99 55.05 43.73 39.23 37.53 40.07
Payables Cycle 58.59 59.82 57.09 32.43 35.38 24.04
Inventory Cycle 65.90 95.45 70.64 66.91 75.70 66.01
Operating Cash Cycle 62.30 90.67 57.29 73.71 77.85 82.03
OPBDIT = Operating Profit Before Depreciation, Interest & Tax
OPBIT = Operating Profit Before Interest & Tax

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Financials
KEY FINANCIAL RATIOS FORMULAE
PROFITABILITY (%):
OPBDIT Margin OPBDIT / Revenue
OPBIT Margin OPBIT / Revenue
Pre-Tax Profit Margin Pre-Tax Profit / Revenue
Net Profit Margin Net Profit / Revenue
Return on Capital Employed (Pre-Tax Profit + Finance Costs* + Debt-Related Foreign Exchange Loss/(Gain)) /
(Total Debts + Total Equity)
CAPITALISATION (TIMES):
Gearing Ratio Total Debts / Total Equity
Net Gearing Ratio (Total Debts - Cash & Bank Balances) / Total Equity
Debt-Capital Ratio Total Debts / (Total Equity + Total On-Balance Sheet Debt)
DEBT COVERAGE (TIMES):
Interest Coverage Ratio OPBDIT / (Finance Costs* + Preference Share Dividends + Interest Capitalised +
Realised Debt-Related Foreign Exchange Loss/(Gain))
OPBDIT Debt Coverage Ratio OPBDIT / Total Debts
Funds from Operations Debt Coverage Ratio Funds from Operations / Total Debts
Operating Cashflow Debt Coverage Ratio Net Operating Cashflow / Total Debts
Free Operating Cashflow Debt Coverage Ratio Free Operating Cashflow / Total Debts
LIQUIDITY (TIMES):
Current Ratio (Current Assets - Amounts Due from Related Parties) /
(Current Liabilities - Amounts Due to Related Parties)
Quick Ratio (Current Assets - Amounts Due from Related Parties - Inventory) /
(Current Liabilities - Amounts Due to Related Parties)
Cash and Cash Equivalents to Short-Term Debts (Cash & Bank Balances + Money Market Instruments) / Short-Term Debts
Short-Term Debts to Total Debts (%) Short-Term Debts / Total Debts
CASH CYCLE (DAYS)
Receivables Cycle Trade Receivables / Revenue x 365
Payables Cycle Trade Payables / Cost of Sales x 365
Inventory Cycle Total Inventory / Cost of Sales x 365
Operating Cash Cycle Receivables Cycle - Payables Cycle + Inventory Cycle
* Include on-going, non-discretionary payments on hybrid securities, if any.
OPBDIT = Operating Profit Before Depreciation, Interest & Tax
OPBIT = Operating Profit Before Interest &Tax

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Islamic Facility Description

Underlying Transaction

1. Pursuant to a Wakalah agreement entered into between the Sukuk Trustee (acting on behalf of
the investors (“Sukukholders”)) and Press Metal as the Issuer (“Wakalah Agreement”), Press
Metal shall be appointed as an agent of the Sukukholders (“Wakeel”) to perform services which
include investing the issue proceeds (“Sukuk Proceeds”) in the relevant Shariah-compliant
Wakalah portfolio (“Wakalah Portfolio”) and management of the Wakalah Portfolio, in accordance
with the Wakalah Agreement. Each Wakalah Portfolio shall comprise a combination of investment
in the following:

(a) the general business of Press Metal Group (“Shariah-compliant Business”), which shall
represent the Sukukholders’ interest in the Shariah-compliant Business; and

(b) Commodities (as defined herein) to be sold to Press Metal as purchaser (“Purchaser”)
under the Shariah principle of Murabahah (“Commodity Murabahah Investment”).

“Commodities” is defined as Shariah-compliant commodities which may include but are not
limited to crude palm oil or such other acceptable commodities (excluding ribawi items in the
category of medium of exchange such as currency, gold and silver) which are provided through
the commodity trading platform, Bursa Suq Al- Sila’ or such other independent commodity trading
platforms as approved by the Shariah Adviser which will be identified at or around the time of each
issuance of the Sukuk Wakalah.

2. The Wakeel shall declare a trust on the trust assets (including the Sukuk Proceeds and the
Wakalah Portfolio) for the benefit of the Sukukholders. The Issuer shall, from time to time, issue
Sukuk Wakalah to the Sukukholders and the Sukukholders shall subscribe to the Sukuk Wakalah
by paying the Sukuk Proceeds. The relevant Sukuk Wakalah shall represent the Sukukholders’
undivided proportionate interest in the relevant Wakalah Portfolio.

3. Pursuant to an investment agreement entered into between the Wakeel and Press Metal as the
investment manager (“Investment Manager”) (“Investment Agreement”), the Wakeel (on behalf
the Sukukholders) shall utilise at least 33% of the Sukuk Proceeds of the relevant Sukuk Wakalah
for investment into the Shariah-compliant Business via the Investment Manager, subject to the
valuation principles set out in the Wakalah Agreement. The Wakeel shall appoint the Investment
Manager to manage the Shariah-compliant Business for the benefit of the Sukukholders.

For the avoidance of doubt, the above ratio of at least 33% of the Sukuk Proceeds of the relevant
Sukuk Wakalah is only applicable at the point of initial investment for each series of Sukuk
Wakalah and does not need to be maintained throughout the tenure of the relevant series of Sukuk
Wakalah. However, the Wakeel shall ensure that the Shariah-compliant Business shall at all times
be a component of the Wakalah Portfolio.

4. The remaining proceeds of the Sukuk Wakalah shall be utilised by the Wakeel for the Commodity
Murabahah Investment. The Commodity Murabahah Investment shall be effected as follows:

(a) Pursuant to the Commodity Murabahah Investment Agreement entered into between Press
Metal as the Purchaser and the Wakeel, the Purchaser shall issue a purchase order
(“Purchase Order”) to the Wakeel with an undertaking to purchase the Commodities from
the Wakeel at the Deferred Sale Price (as defined below).

(b) Pursuant to the Purchase Order, the Wakeel shall purchase the Commodities on spot basis
from the commodity supplier (via a commodity trading participant), at the commodity
purchase price equivalent to such remaining Sukuk Proceeds of the relevant series of Sukuk
Wakalah after investment into the Shariah-compliant Business (“Commodity Purchase
Price”). The Commodity Purchase Price shall comply with the SC’s SAC asset pricing
requirements as provided in the LOLA Guidelines.

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(c) Upon acquiring the Commodities, the Wakeel (on behalf of the Sukukholders) shall sell the
Commodities to the Purchaser for a sale price equivalent to the Commodity Purchase Price
plus the profit margin payable on a deferred basis (“Deferred Sale Price”). For the
avoidance of doubt, the Deferred Sale Price shall be equal to the aggregate of the Expected
Periodic Distribution Amount (if any) and the nominal value of the relevant series of Sukuk
Wakalah.

(d) The Purchaser shall, subsequently sell the Commodities to the commodity buyer via a
commodity trading participant on spot basis for an amount equal to the Commodity
Purchase Price.

5. The Wakeel shall distribute income generated from the Wakalah Portfolio (“Income”) up to:

(a) in respect of Sukuk Wakalah with periodic distribution (“Periodic Distribution”), the
Expected Periodic Distribution Amount to the Sukukholders in the form of Periodic
Distribution on each periodic distribution date (“Periodic Distribution Date”); or

(b) in respect of Sukuk Wakalah without Periodic Distribution, the expected one-off distribution
amount which shall be equal to the difference between the nominal value and the Sukuk
Proceeds of the Sukuk Wakalah (“Expected One-off Distribution Amount”), to the
Sukukholders in the form of a one-off distribution upon the declaration of a Dissolution
Eventor the maturity date of the relevant series of Sukuk Wakalah (”Maturity Date”),
whichever is earlier.

Any excess above the Expected Periodic Distribution Amount or the Expected One-off Distribution
Amount, as the case may be, shall be waived by the Sukukholders and retained by the Wakeel as
incentive fee.

6. (a) Press Metal as the obligor (“Obligor”) shall issue a purchase undertaking (“Purchase
Undertaking”) in favour of the Sukuk Trustee (acting on behalf of the Sukukholders),
under which the Obligor undertakes to purchase the Sukukholders’ interest in the Shariah-
compliant Business from the Sukuk Trustee (acting on behalf of the Sukukholders) upon:
(i) the declaration of a Dissolution Event or (ii) the Maturity Date, whichever is earlier, at
the market value of the Shariah-compliant Business (“Exercise Price”) by entering into a
sale agreement for such purchase.

(b) The Sukuk Trustee (on behalf of the Sukukholders) shall issue a sale undertaking (“Sale
Undertaking”) in favour of the Issuer, under which the Sukuk Trustee undertakes to sell
the Sukukholders’ interest in the Shariah-compliant Business to the Issuer upon early
redemption of any Sukuk Wakalah prior to the Maturity Date, at the Exercise Price by
entering into a sale agreement for such sale.

7. Upon the declaration of a Dissolution Event, the Maturity Date or an early redemption, the
proceeds from the Wakalah Portfolio made up of the Exercise Price, outstanding Deferred Sale
Price (subject to Ibra’) and any returns generated shall be paid to the Sukukholders to redeem the
relevant Sukuk Wakalah. Any excess above the nominal value or the accreted value (as the case
may be) and if applicable, any accrued but unpaid Expected Periodic Distribution Amount of the
relevant series of Sukuk Wakalah shall be waived by the Sukukholders and retained by the Wakeel
as an incentive fee upon the full redemption of the relevant Sukuk Wakalah.

Upon the full payment of all amounts due and payable under the relevant series of Sukuk Wakalah,
the trust in respect of the relevant Wakalah Portfolio will be dissolved and the relevant Sukuk
Wakalah held by the Sukukholders will be cancelled.

“Press Metal Group” means Press Metal and its subsidiaries from time to time.

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Press Metal Aluminium Holdings Berhad 25