RHB Research Maintained BUY call: PMetal Rides of Tailwind

Press Metal’s FY21 earnings came in below expectations due to the provision of the full-year state sales tax into a single quarter. The research house expects Press Metal to post record performances after the full commissioning of the Samalaju Phase 3 plant and decade-high aluminium prices, moving into 2022.

The 4QFY2021 earnings came in at MYR285 million (which translates into +0.4% QoQ, +89% YoY), bringing the full-year figure to MYR1.03bn (+121% YoY). The earnings shomehow came below analysts’ expectations. The negative deviation mainly stemmed from the accrual of state sales tax (MYR50m for full FY21) that was booked in the quarter. Elsewhere, its associate contributions jumped more than 100% QoQ, largely driven by 20.9%-owned PMB Technology recording stellar profits. A DPS of 1 sen was declared for the quarter, bringing full-year DPS to 3.75 sen (implying 29% payout).

Ongoing conflicts arising from the Ukraine invasion have resulted in higher energy prices in the EU, which was already been scrambling for supplies during the previous heating season. ~810,000 tonnes of regional smelting capacity went offline with another 700,000 tonnes at high risk of curtailment, thereby adding further pressure in the deficit market. Additionally, the potential imposition of sanctions on Russian aluminium (largest producer ex-China) are expected to lead to further higher regional premiums and spur restocking activities.

Alumina prices have surged 17% YTD to USD405.00/tonne on the rise in energy costs and COVID-19-related closures of refineries in Guangxi. The alumina-aluminium ratio remains favourable at 12% (historical average: 16%). However, prebaked anode prices have been rising steadily since 2H21, attributed to cost increases in petroleum coke and coal tar. Prices remain elevated at CNY5,030/tonne, representing an anode-aluminium ratio of 24% (historical average: 24%).

RHB Research trims the forecast earnings of Press Metal for FY2022-2023 estimates by 2-4%. The negative revision was partly offset by the upward revision in our realised LME aluminium prices to USD2,613 and USD2,735 for FY2022 and FY2023 from USD2,440 and USD2,450. Press Metal has hedged 60% and 30% of its FY2022F and FY2023F sales volumes at USD2,300-2,400 as of January.

The research house maintain BUY call for Press Metal with lower target price of MYR8.25 after accounting for the latest earnings changes and the expiration of the pioneer tax status after 2027. Their target price implies 29x FY22F P/E (+0.6SD to its 5-year mean), given Press Metal’s anticipated earnings upcycle and the aluminium market’s positive backdrop. Additionally, we ascribe 6% ESG premium to our intrinsic value, as its ESG score stands above the country median. Foreign shareholding stood at 12% as of January.

While key risks identified by the research house for this counter are deterioration in global economic conditions, unfavourable commodity price movements, and USD/MYR fluctuations.

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