PETALING JAYA: Press Metal Aluminium Holdings Bhd, which has a good run in its share price over the last six-month, is expected to see higher earnings growth this year driven by new capacity and higher aluminium price.
Kenanga Research, in a report, said this year would be a “record year” for Press Metal with “explosive” earnings growth of 154% and 24% year-on-year for FY21 and FY22, respectively.
“Aluminium price is currently above US$2,100 per tonne – a new high since August 2018 which we believe has yet to peak with the tight supply trailing high demand on the reopening of economies. With new 42% capacity from Samalaju phase three, FY21 will be a record year, ” it said.
The research house has raised its aluminium price assumptions to US$2,000 per tonne for FY21 and FY22 from US$1,950 per tonne.
“We believe our US$2,000 price assumption is not excessive given the current supply-demand dynamic mismatch.
“Key risks to our recommendation are a sharp fall in aluminium price, escalation of raw material prices as well as major plant disruptions or closure, ” it said.
Kenanga said aluminium price remained solid at above US$2,100 per tonne and the year-to-date average price is US$2,023 per tonne and this is 6% above the US$1,916 per tonne in the fourth quarter of last year.
In addition, alumina-to-aluminium price ratio was only 14.9%, well below Q4FY20 of 15.4%.
“This indicates potential margin expansion, ” it added.
Meanwhile, RHB Research expected a higher aluminium average selling price in the next three year as it expected the metal upcycle to sustain on ex-China consumption recovery versus muted capacity additions.
There was also the cost-push inflation factor led by rising raw material and energy costs as well as the improving supply-demand dynamics.
“Given the low carbon footprint of its predominantly hydro-powered smelters, Press Metal could begin tapping into the emergent market potential for green aluminium, for which extra premium of up to US$14 per tonne have been recently quoted in the European markets, ” the research house said.
“We believe this trend will gain greater momentum as the global decarbonisation agenda continues, while the London Metal Exchange (LME) is also targeting to launch a new platform for price discovery and trading of low-carbon aluminium this year, ” it said.
RHB Research has raised its 2021 to 2023 LME aluminium price to between US$2,100 and US$2,225 per tonne from between US$2,000 and US$2,090, while futures price is between US$2,160 and US$2,230 per tonne.