Press Metal Aluminium Bhd’s (Press Metal) 9MFY23 results met Kenanga Research’s forecasts but disappointed the market, but the research house believes that aluminium prices will hold up given the supply constraints globally.
Thus, Kenanga maintains its MARKET PERFORM call and our forecasts, and keeps its DCF-derived TP of RM5 (WACC: 8.7%; TG: 2%), to reflect a 5% premium to its DCF valuation of RM4.76, by virtue of its 4-star ESG rating.
“We keep our aluminium price assumptions at USD2,350/MT-USD2,450/MT in FY23-24, with a long-term assumption of USD2,200/MT,” it said.
Kenanga noted that Press Metal’s 9MFY23 core net profit fell 22% YoY due to a weak average selling price (ASP), worsened by input costs that were sticky to the downside, crimping margins.
“Its core net profit came in within our expectations at 73% of our full-year forecast but disappointed the market at only 70% of the full-year consensus estimate.”
The group declared a 3rd interim NDPS of 1.75 sen, with ex-date on Dec 15 and payment date on Dec 29, tallying 9MFY23 NDPS to 5.25 sen which is higher than the 5 sen paid in 9MFY22.
“We acknowledged that contrary to expectations, China’s reopening has not significantly boosted the demand for aluminium despite various measures introduced to stabilise the property market, a meaningful recovery is still not quite on the horizon.
“Similarly, the roll-out of construction and infrastructure projects in China has not been as robust as anticipated. However, there is improved sign of recovering from the solar sector, EVs and transmission infrastructure in China,” the research house added.
Meanwhile, on the supply side, more stringent “green” requirements, especially in China, will see the permanent shutdown of smelters powered by fossil fuels (especially coal), further tightening the global aluminium supply.
“Western countries will continue to avoid Russian aluminium that makes up c.6% of world aluminium production. All these factors should keep aluminium prices stable,” Kenanga added.
It continue to like Press Metal for its structural cost advantage over international peers, strongly secured alumina supply with stakes in two alumina miners and green investment appeal as a clean energy source producer.
“However, the upside to its earnings is capped by subdued aluminium prices against a backdrop of a weak global economy.
The risks to Kenanga call include a global recession resulting in a sharp fall in the demand for aluminium that hurt prices, escalation in the cost of key inputs and major plant disruptions or plant closures.
