RHB Research has retained its “BUY” rating on Press Metal, with new target price (TP) MYR6.58 from MYR7.53, this translates to 35% upside and c.2% FY23F yield. 1H22 topline exceeded Street expectations on the back of better ASP and Samalaju Phase 3 contributions. However, bottomline was dragged by higher carbon anode and logistics cost, making up 44% of Street estimates. Although the research house lowers its LME aluminium estimate, it believes the stronger value-added products (VAP) contribution (with better margin as Press Metal moves up the value chain) and better utilisation of its smelting plant could anchor near-term normalisation of all-in aluminium prices.
Robust set of results. 1H22 topline came in at 56% and 54% of our and Street full year estimates. Despite the sequentially easing of aluminium prices in 2Q22 (averaging at USD2,881/tonne from USD3,255/tonne in 1Q22), on YoY basis. The strong revenue was mainly driven by better ASP from LME aluminium prices as well as the commissioning of the Phase 3 Samalaju smelting plant in Oct 2021.
Plant operating capacity improved. Maintenance progress of P1 and P2 plants in Mukah has normalised, with utilisation reaching 96% in 2Q22 vs 92% in 1Q22. Bintan Alumina Indonesia (Bintan) Phase 2 (alumina refining business) is currently 70% completed, with the first 500k tonnes (total 1m tonnes capacity) slated to begin commissioning in Oct 2022. Meanwhile, management guided that its extrusion plant in Foshan was not affected by the power curtailment in China in 2Q22.
Aluminium prices taking a breather. QTD, aluminium prices are averaging around USD2,400 (vs 3Q21: USD2,650). It is expected the continued supply tightness low inventory level (Figure 1), protracted geopolitical tensions in the Russia-Ukraine conflict and structural shift in the demand towards decarbonisation to support aluminium prices in the near-term. Moving forward, management guided for a hedging policy of 35% and 25%, or USD2500 and USD2,550 for 2023-2024 (vs its usual 65% and 35% hedged and unhedged positions).
The research analysts trim their aluminium price forecast for 2022-2023 to USD2,500 and USD2,550 as well as the Main Japan Port (MJP) premium assumption for 2022 to USD120 (current MJP spot at USD103). In terms of alumina procurement, alumina prices in 2022 are expected to be higher than the market given 50% of the alumina cost was hedged when the cost of aluminium was relatively higher (due to time lag effect). The research house raises its 2022F alumina to aluminium cost ratio slightly to 14.5% from 14%.
The research house has reiterated its “BUY” rating with lower SOP-derived TP of MYR6.58 (based on 6.9% WACC, terminal growth 2.5%). The TP implies 25x 2023F P/E against its historical mean of 26x. A 6% ESG premium is imputed based on our in-house ESG methodology.
Key downside risks include a sharp deterioration in global economic conditions and spike in raw material costs in global economic conditions.
Salient Points:-
Target Price (Return): MYR6.58 (+35%)
Price (Market Cap): MYR4.89 (USD9,011m)
ESG score: 3.30 (out of 4)
Avg Daily Turnover (MYR/USD) 38.3m/8.67m
