PETALING JAYA: The earnings prospect for Press Metal Aluminium Holdings Bhd looks promising on soaring aluminium prices, say analysts.
The aluminium producer posted another record quarter in the third quarter of financial year 2021 (FY21) with core profit rising 15% to RM285.4mil quarter-on-quarter.
But the results missed forecasts on higher-than-expected operating costs as the logistic and raw material costs spiked.
Nonetheless, Kenanga Research remained upbeat on Press Metal’s earnings prospects, given that aluminium prices are expected to stay high in the near term while its fully commissioned Samalaju phase three plant will lead volume growth.
“As such, we continue to rate the stock an ‘outperform’ with a higher target price of RM6.96 from RM6.50,” added the research house.
Kenanga Research also said the current aluminium prices remained solid above the US$2,600 (RM11,018) per tonne level with quarter-to-date average of US$2,789 (RM11,818) per tonne and year-to-date average of US$2,456 (RM10,407) per tonne respectively.
Post-third quarter FY21 results, the research house has raised its aluminium price assumption to US$2,100-US$2,400 (RM8,899-RM10,170) per tonne with higher operating cost assumptions.
Meanwhile, RHB Research is maintaining a “buy” call on Press Metal with a target price of RM8.50.
It noted that the group’s core profit for the third quarter of FY21 came in a tad below estimates, mainly attributable to the pandemic’s subsisting productivity impact on its minor downstream operations.
On the other hand, its 320,000-tonne-per annum Samalaju phase three smelter achieved full commissioning in October.
This has enabled the group to fully capture the strength in both spot and 2022-2023 forward London Metal Exchange aluminium prices, which remain at decade-highs of US$2,600-US$2,700 (RM11,018-RM11,441) per tonne.
RHB Research has trimmed Press Metal’s FY21 earnings estimates by 6% mainly after incorporating Covid-19’s subsisting impact on workforce deployment, which may still inhibit fourth-quarter volume growth despite phase three’s commissioning, due to reallocation of staff to undertake plant turnaround works.
“We also fine-tuned 2021’s commodity price assumptions (albeit with negligible earnings implication) but kept FY22-FY23 forecasts unchanged.
“This assumes minimal impact from Cukai Makmur due to the existing tax holiday for its primary operations at Samalaju (89% of smelting capacity).”
The research house said its valuation has incorporated a 6% premium onto sum-of-parts derived fair value, reflecting Press Metal’s environmental, social and governance credentials as a low-carbon, sustainability-driven aluminium producer.
“We continue to like Press Metal for its compelling three-year earnings compounded annual growth rate of 77% and favourable exposure to aluminium’s role in driving the global decarbonisation agenda,” it added.
The key downside risks for the group include sharp deterioration in global economic conditions, resurgence of Covid-19 cases and raw material cost pressures.