Bauxite decision lifts WZ Satu, IJM


The decision by the government to end the moratorium on the mining and export of bauxite in Pahang lifted stocks like WZ Satu Bhd and IJM Corp Bhd, while aluminium maker Press Metal Aluminium Holdings Bhd fell.

WZ Satu, which mines the metal, rose 4.5 sen or 14% to 36.5 sen, while IJM — which operates and owns a 60% stake in the Kuantan Port from where the product is shipped — rose 10 sen or 5.56% to RM1.90 in the market trade yesterday.

On Monday, Water, Land and Natural Resources Minister Dr Xavier Jayakumar said the moratorium on the mining and export of bauxite from Pahang will not be extended beyond end-March due to strong export demand and revenue for the state.

Mining and export of the mineral can resume under new standard operating procedures and tighter enforcement.

Affin Hwang Investment Bank Bhd said it would retain its ‘Sell’ call on WZ Satu as it expects the company’s construction, and oil and gas (O&G) divisions earnings to remain under pressure despite the government’s announcement.

“No change in our ‘Sell’ re- commendation on WZ Satu or its earnings forecast as the impact from the lifting of the mining ban is hard to estimate currently.

“It also depends on how fast bauxite mining production can resume and regional demand for the material,” Affin Hwang analyst Loong Chee Wei told The Malaysian Reserve.

The investment bank has a target price of 14 sen for WZ Satu.

Malaysia exported nearly 3.5 million tonnes a month of bauxite to China until end-2015 until a ban was enforced in 2016 due to pollution from the mining activity, according to Reuters.

Earlier this month, Affin Hwang noted in a research report that it foresees WZ Satu’s construction and O&G divisions to post further losses and forecast it to post a net loss of RM2.7 million for its financial year ending Aug 31, 2019 (FY19).

Affin Hwang also trimmed the company’s earnings forecasts by 50%-72% for FY20 and FY21 estimates.

WZ Satu posted a net loss of RM11.8 million for the first quarter ended Nov 30, 2018 (1Q19) due to losses at its construction and O&G segments.

Its bauxite mining associate companies contributed a lower net loss of RM100,000 in the 1Q due to non-activity.

Affin Hwang had said the key upside risks for WZ Satu are higher than expected new contract wins, lifting of the bauxite mining ban, higher than expected O&G earnings and orderbook replenishment.

WZ Satu’s current construction orderbook of RM731 million should support a return to profitability in FY20, although price-to-earnings valuations remain expensive at 57 times of FY20 estimates earnings per share.

WZ Satu’s share price rose from a five-year low of 17.5 sen in December last year to a high of 41 sen due to its major shareholders’ link to the newly  crowned Yang di-Pertuan Agong who hails from Pahang.

Meanwhile, Press Metal closed six sen or 1.45% lower at RM4.08 on fears the export of bauxite will negatively impact aluminium prices.

Reuters noted that Shanghai aluminium prices moved lower yesterday on the belief that Malaysia’s decision will help reduce costs in the aluminium supply chain for top producer China. Bauxite is refined to make alumina, which is then used to make aluminium metal.