This article first appeared in The Edge Malaysia Weekly on December 18, 2017 - December 24, 2017

THIRTY-one years ago, Tan Sri Paul Koon Poh Keong, group CEO and co-founder of Press Metal Aluminium Holdings Bhd, roped in his older brothers to start an aluminium extrusion business. It was 1986 and the country was mired in an economic crisis triggered by high interest rates in the US that led to the collapse in commodity prices. Jobs were scarce. Koon, the youngest of seven brothers, had just graduated with a Bachelor of Science in electrical engineering from The University of Oklahoma.

Born and raised in Selangor, the brothers started the aluminium extrusion business with almost zero knowledge, but the family was involved in hardware and trading. It traded in steel, copper and aluminium, among others. “We thought it (aluminium extrusion) was something we could start,” says Koon in an exclusive interview with The Edge.

Press Metal started as a very small outfit in Puchong with only 12 workers and the brothers were very hands on. As the company expanded, it moved to Kapar, Selangor.

Within seven years, the Koons had listed the company on the Second Board of the Kuala Lumpur Stock Exchange. “We thought it would be good to tap into the market to raise funds to grow,” says Koon.

Years later, seeing limited growth in Malaysia, the Koons made the major decision of looking offshore — to China. “We tried to export from Malaysia and we faced a lot of competition from companies, primarily those from China,” explains Koon. He adds that the 1990s saw the start of China’s Industrial Revolution. “China was up and coming. The Chinese companies were mushrooming and becoming very strong manufacturers in the international arena.”

Competing with the Chinese players was “really tough”, Koon recalls. “They had a way of selling [their products] and we thought maybe it’s time for us to have a factory in China. That was actually a very big decision. But it was a major breakthrough and a timely one as well.”

That was 2005. Koon describes the last 12 years as a “fantastic journey”. “We have the best of both worlds. We have a very huge domestic market and, at the same time, we have a very strong manufacturing base in China,” says Koon. He adds that customers want aluminium products in very large quantities. “They come to China because they know that only the factories in China are able to sustain that kind of volume.”

In 2007, Press Metal ventured into the upstream business of aluminium smelting, and two years later, built the country’s first aluminium smelting plant in Mukah, Sarawak.

To keep costs low, the Koons adopted Chinese technology for the smelting plant. Today, the plant has a relatively low production cost compared with its Western counterparts. Koon adds that the location of the plant is very good, facing the South China Sea and being close to its markets — Southeast Asia, Taiwan, South Korea and Japan.

Currently, Press Metal has a smelting capacity of 760,000 tonnes per year and an extrusion capacity of 160,000 tonnes per annum. The demand for aluminium in Malaysia and Asia ex-China are estimated at 312,000 tonnes and about six million tonnes per annum respectively.

Press Metal’s three smelting plants — in Mukah and Samalaju Phases 1 and 2 — have production capacities of 120,000 tonnes, 320,000 tonnes and 320,000 tonnes respectively. Its two extrusion plants — in Foshan, China, and Kapar — have production capacities of 120,000 tonnes and 40,000 tonnes respectively.

“We are the pioneer, converting Malaysia from an importer into an exporter. The aluminium industry is going to be a very important industry going forward,” says Koon, explaining that the metal is used in all kinds of industries.

China’s reform policy a boon

Aluminium prices have surged, hovering above the US$2,000 per tonne level since the second week of August. Koon believes the current price is at a healthy level and sustainable. Year to date, the price has risen about 19.09% to US$2,009 per tonne from US$1,687 per tonne, according to the London Metal Exchange.

According to Koon, this was the result of the Chinese government’s cutting of industrial capacity and crackdown on its bloated steel and aluminium industry. Earlier this year, China’s environmental protection ministry ordered producers to cut aluminium and alumina output by more than 30% across 28 cities for the winter season.

In a research note last month, UOB Kay Hian said every US$100 per tonne increase to its forecast all-in aluminium prices could raise Press Metal’s earnings by about RM170 million annually.

For the full financial year of 2016 (FY2016), Press Metal saw its revenue more than double to RM6.61 billion from RM2.38 billion in FY2012, while net profit increased to RM495.45 million from RM183.9 million.

Koon says the market demand for aluminium is still very robust, driven especially by the transport sector, which produces electric vehicles that are lighter and have lower emission, high-speed trains, aircraft, trucks and even bicycles.

Koon says it is easier to shape aluminium, which is one-third the weight of steel. “Architects love it. They can make it into any colour and it can last for 30 years.

“This is going to be a big revolution; we see the demand for this sector to be very strong. There is no other material to replace it in IT products, even TVs, so basically we see aluminium in every aspect of our lives,” says Koon, adding that aluminium is clean, rust free, maintenance free and recyclable.

More room to grow with potential cost savings

Having its plant in Sarawak comes with a host of benefits, one of them being lower electricity tariffs. At the end of 2014, Press Metal signed a 25-year power purchase agreement (PPA) with Syarikat Sesco Bhd, a wholly-owned subsidiary of Sarawak Energy Bhd, to purchase 500mw of electricity for Phase 2 of its plant in Samalaju.

There are concerns that Sarawak Energy would raise electricity tariffs, but Koon notes that the 25-year PPA is watertight. Thus, he does not see any unexpected changes.

He emphasises that the terms of the PPA are reasonable, adding that Press Metal is like an anchor tenant for Sarawak Energy due to its off-take commitment under the PPA.

Moreover, Koon says Sarawak Energy would prefer to sell to Press Metal as it requires only one transmission line, compared with distributing power to several hundreds or thousands of customers.

It is also interesting to note that the conveyor belt — which has been commissioned this month at a capital expenditure of about RM40 million — connecting the Samalaju port with its plant in Samalaju will ease operations and logistics costs. However, Koon declines to disclose any details as the company is still in discussion with the port authorities.

Koon says Press Metal should be conducting the test run the conveyor belt this month. “It’s important because the Samalaju port is ready. We will try to capitalise on it, which is next to our plant. Previously, we had to go to Bintulu Port. But now that parts of the conveyor belt are ready, we are beginning to use them,” Koon notes.

He adds that the conveyor belt, which will transport raw materials to the plant, will only be fully utilised next year.

With ample land to expand — only half of its 500 acres in Samalaju is occupied — and the availability of power, Press Metal is waiting for the right opportunity to grow its smelting capacity.

“The state plans to continue growing more power … it is a continuing discussion … but we cannot grow without opportunity. What we’re saying is that we have many directions to grow downstream and upstream. There are many areas for us to grow,” says Koon.

Furthermore, he adds, Press Metal has been working on making more value-added products to grow margins and mitigate cost increases. “We have come out with expansions downstream and midstream, and made a lot of investments in billets and rods.” He says the expansion of its new midstream production lines will be completed at the end of next year, which will increase the contribution of its overall value-added products from the current 30% to 50%.

With the new production lines for billets and wire rods commissioned this month, Press Metal has doubled its production of billets and wire rods to 240,000 tonnes per annum and 48,000 tonnes per annum respectively.

To cater for more growth, it is important to mitigate costs, says Koon. While Press Metal is producing its own carbon anodes (a major raw material used in smelting aluminium), it is also planning to produce its own aluminium. Currently, the company is importing the material, which makes up 30% to 40% of the group’s costs. Koon is looking into sourcing bauxite — the raw material for making aluminium — from Kalimantan, Indonesia.

It has been a very good year for Press Metal and Koon. The rise in Press Metal’s share price — it has more than tripled year to date — catapulted Koon and his brother, Poh Ming, into Forbes’ Malaysia’s 50 Richest list. They are ranked 13th with a net worth of US$1.1 billion (RM4.9 billion). Koon was made a Tan Sri and Press Metal will be included in the FBM KLCI.

Koon, 57, has a 40.16% stake in Press Metal. He is also executive chairman of the company’s 28% associate, PMB Technology Bhd. Poh Ming is executive vice-chairman and has 8.55% equity interest in the company. He is also CEO of PMB Technology, a complete chain supplier focusing on downstream aluminium products.

Three other brothers — Poh Weng, Poh Tat and Poh Kong — are executive directors with stakes of 6.18%, 3.32% and 2.51% respectively.

Koon says the company’s great year is the “fruit of the last few years”. “It was timely that last year, we reached full capacity. The market turned around and became more positive. All these things helped.”

Who would have known that the fledgling 12-person company that started in 1986 would become the largest aluminium smelter and extruder in Southeast Asia?

As for where it is headed, Koon says the group will continue to improve its results while looking for growth opportunities.

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