Press Metal to see stronger earnings, says RHB Research

This year, group chief executive officer Datuk Paul Koon Poh Keong is targeting to ramp up production to 760,000 tonnes this year from 620,000 achieved in 2016.

KUALA LUMPUR: RHB Research Institute expects Press Metal to post stronger earnings by raising its value added production while trimming production costs further – despite having already reached the first quartile of the global cost curve.

It said on Monday Press Metal’s earnings for the nine months of FY 2016 were almost spot-on. 

“We make no changes to our estimates and Buy recommendation. Target price of RM6.29 (45% upside) is derived from applying a 10% discount to our fully-diluted discounted cashflow valuation,” it said.

Press Metal operates successful aluminium smelters that are in the first quartile of the global production cost curve – these are expected to keep generating robust free cash flow.

“The 3Q16 core profit of RM132mil was up 271.5% on-year and 23.0% on-quarter respectively. The results were largely in line with our expectations but ahead of street estimates.

“While some may argue that there is limited volume growth potential following the full commissioning of all its smelters, we see room for earnings upside,” it said.

RHB Research said the upside for Press Metal is the cheaper alumina (in FY17), which should translate to lower material costs and potential cost savings from new smelters that are sharing some common infrastructure, with room to lower power usage.

Other positive factors are the commissioning of Samalaju Port (capable of handling Panamax vessels) in April 2017, which would help cut inland logistics and shipping costs and also increased value-added production may help enhance profitability.

The research house also said the upward bias in all-in-aluminium price, which “we suspect has bottomed out
with spot contract prices at the London Metal Exchange having broken the US$1,700 a tonne mark last Friday (the peak since July 2015),” said the research house.