RHB Investment Bank’s (RHB IB) Malaysia Sector Update cited out of the three companies that reported results under their coverage, one exceeded expectation, while two fell below estimates.
RHB is optimistic on the aluminium market, given the low inventory levels, increasing EV adoption,
and China’s economic upswing in 2H24F. Their confidence on the cement industry stems from its alignment with the construction sector and anticipated sustained demand, fuelled by major domestic infrastructure projects.
Aluminium
PMAH’s 9M23 core earnings of MYR877.3m fell below RHB’s and Street’s expectations at 58% and 67% of full-year estimates.
The YoY decline in quarterly earnings was attributed to a flattish-to-softer drop in LME aluminium prices – averaging at USD2,159/tonne (-4.6% QoQ; -8.4% YoY).
Despite an 8.5% QoQ decline in revenue, core PATAMI remained stable, partially aided by lower input costs, stronger associate contributions, and improved sales volumes of value-added products. In addition to the stabilisation of LME aluminium prices, RHB expects PMAH to enjoy further savings in raw material costs moving forward due to its lag effect.
Global aluminium updates and outlook
Global aluminium production surged c.4% QoQ in 3Q23 as smelters in China’s Yunnan province resumed production. As the drought season approaches for the province, aluminium production capacities are expected to be curtailed by 9-40%, totalling c.1.16m MT pa.
European smelters have not yet widely resumed operations following the easing of power prices. These production cutbacks, combined with rising demand from the green sector, are expected to keep inventory levels low.
Also, supply reductions due to a shortage of hydropower could position China to absorb the world’s surplus, particularly in green aluminium.
Cement
Among the two cement players under RHB’s coverage, LMC surprise Street with its quarterly performance, while Cahya Mata Sarawak (CMS) fell short of expectations.
LMC’s 1QFY24 earnings of MYR88.5m were at 49% and 43% of our and consensus’ full-year forecasts. Revenue grew 13.6% QoQ and 33.7% YoY to MYR1.15bn, driven by a spike in sales volumes and
ASPs for both domestic cement and ready-mixed concrete.
Cement and ready-mixed concrete volumes rose 15% QoQ and 18% YoY. In contrast, CMS’ 9M23 earnings of MYR69.9m were at only 62% and 50% of our and Street’s full-year projections.
The weaker-than-expected results were due to widening losses in the phosphates division and weaker contribution from road maintenance, property development, and strategic investments.
Cement demand still resilient
Bulk cement prices stood at MYR380/MT as of November, maintaining the steady YTD average ASP of MYR380/MT.
RHB’s unwavering confidence in the cement industry is rooted in its inherent synergies with the construction and property sectors. RHB reaffirms their conviction that cement demand will flourish in the medium-to-long term, fuelled by the launch of major infrastructure projects in Malaysia.
Risks
Decline in LME aluminium prices, decelerating global economic growth, higher-than-expected raw material costs, lower-than-expected cement ASPs, and lower-than-expected cement production.
Still OVERWEIGHT; RHB’s Top Picks are Press Metal (PMAH), Malayan Cement (LMC).
