Press Metal 'outperform', Daibochi 'buy'

  • Business
  • Friday, 11 Aug 2017


By Kenanga Research


Target price: RM4.05

THE tightening supply of aluminium provides good short-run support for aluminium prices.

While higher prices may trigger new starts, the commissioning process requires a ramp-up of about six months, which could lead to supply tightness up to the second half of 2018 (H2’18).

Furthermore, China noted that “all new capacity should replace capacity that has already exited the market via replacement permits which are in tight supply at an estimated two million tonnes, compared to the illegal capacity of six million tonnes.”

Kenanga Research said it remained optimistic on short-term price prospects as the Chinese government signalled its intent to shut down excess capacity for “blue skies” over the winter months.

“Since then, aluminium prices have been on a consistent uptrend, and we think that with the environmental deadline looming, further shutdowns should propel prices over the next quarter,” it said

Meanwhile, the research house said China production numbers indicated an uptrend since February 2017, and that H1’17 production actually increased 11% annually to 16.7 million tonnes.

Given these factors, the research house maintained a conservative price outlook until actual numbers were released in the fourth quarter of 2017 (Q4’17) until Q1’18 to provide better clarity on the long-term sustainability of prices over US$2,000 per tonne.

“Thus, we advocate for investors to consider a trading position in the short term to capitalise on aluminium price gains, but adopt a ‘seeing is believing’ perspective when considering prices in the longer run, especially beyond H2’18.


By MIDF Research

Buy (Maintain)

Target price: RM2.51

DAIBOCHI’S results for the first half of financial year 2017 (H1FY17) are largely within expectations as the cumulative six months earnings make up for 38.3% of MIDF Research’s full year earnings forecast while revenue consists of 45% of the research house’s full year revenue estimation.

MIDF Research expected a stronger second half due to positive contribution coming from Myanmar, as well as two multinational corporation (MNC) customers from Indonesia, which is expected to start contributing in Q4FY17.

Daibochi Packaging (Myanmar) Co Ltd (DPM) started operations last month. Meanwhile, its Q2FY17 year-on-year (y-o-y) revenue and profit after tax (PAT) fell by 10.5% and 17.1%, respectively. Revenue was lower at RM86.8mil during the quarter compared to last year, mainly due to an operational hiccup at a Philippines’ customer, which led to softer export sales.

Due to the lower utilisation rate, operating expenditure (opex) margin increased, which led to the 17% drop in net profit y-o-y to RM5mil.

MIDF Research said that this customer has resolved its problems and should have a normalised contribution going forward.

“We believe that Q3FY17 will be better than Q2FY17 due to contribution from Myanmar as well as resumption of contribution from the Philippines’ customer.

“Daibochi has started operations at DPM. Since then, it has been aggressively pursuing new contracts from food and beverage and fast moving consumer goods in Myanmar,” said MIDF Research.

DPM expects to start exporting to Daibochi’s price-sensitive customers in Malaysia in the third quarter.

On top of that, it is also looking at new beverage labelling business.

These will contribute to the positive growth of DPM in FY17, which will also lead to stronger performance for Daibochi in the second half.

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