"While alumina prices have normalised to 16%-17% of aluminium LME price which is now at c.USD285/MT from above USD300/MT level in 3QFY19, the benefit of the drop in alumina prices should be fully felt from 4QFY19 onwards.
"Looking beyond FY19, we expect sturdy earnings growth in FY20 and FY21 on the back of 42% smelting capacity expansion, cheaper alumina prices and rising sales composition of high-value products, i.e., billet and wire rod," said the research house.
It maintained outperform on the stock with an unchanged target price of RM5.50.
Kenanga said the group's recent 3Q earnings met expectations, rising 29% sequentially to RM137.5mil on lower material costs.
For the cumulative nine months period to Sept 30, 2019, core profit was RM354.7mil, which came to 67% and 66% of Kenanga's and consensus full-year estimates.
This was in line with expectations as Kenanga expects a stronger ending in 4Q given the falling alumina prices.
Year-on-year however, 3Q net pofit plunged 25% while revenue fell 11% owing to the sharply lower aluminium market price. For the nine months period, core profit contracted 28% on the back of a 7% decline in revenue due to the fall in aluminium market price.
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