PETALING JAYA: Press Metal
Aluminium Holdings Bhd is likely to record a robust double-digit net profit growth in financial year 2022 (FY22), despite the reduction in aluminium spot prices and a significant uptick in carbon anode prices which will drive production costs up.
The net profit of the largest aluminium smelter in South-East Asia is projected to jump by 50% year-on-year (y-o-y) in FY22, even as Hong Leong Investment Bank (HLIB) Research forecast another round of quarter-on-quarter (q-o-q) decline in net profit for the third quarter of FY22 (3Q22)
As for FY23, HLIB Research anticipates that Press Metal’s net profit would grow at a slower rate of 41% y-o-y.
The robust y-o-y growth for FY22 and FY23 is, among others, attributed to the full commissioning of Press Metal’s third phase Samalaju smelter expansion and further contribution from its 25%-owned PT Bintan alumina refinery.
“On the upcoming 3Q22 results, core earnings for the quarter could come in within the range of RM315mil to RM365mil, barring any unforeseen swings in cost structure,” said HLIB Research.
This represents a drop of 11% to 23% q-o-q and an increase of 16% to 34% y-o-y.
This is estimated from London Metal Exchange aluminium spot prices, which averaged at US$2,357 (RM11,142) per tonne in 3Q22, compared to the average of US$2,896 (RM13,690) per tonne in 2Q22 and US$2,652 (RM12,536) per tonne in 3Q21.
HLIB Research also noted that carbon anode prices averaged at 6,532 yuan (RM4,250) per tonne in the first nine months of FY22 (9M22). This represents a 66% increase from 3,943 yuan (RM2,565) per tonne in 9M21, based on Bloomberg data.
“We highlight that carbon anode serves as a catalyst in the production of aluminium and is part of the production cost of Press Metal.
“With that, we are expecting some profit margin squeeze in 3Q22 earnings quarter-on-quarter, coupled with lower revenue due to the recent dip in aluminium spot prices,” the research house said in a note yesterday.
Meanwhile, HLIB Research said that it is positive on Press Metal’s 10-year tolling agreement with Glencore, where the latter will supply Press Metal with alumina and off-take aluminium over a decade.
It added that the deal would further anchor Press Metal as one of the highly recognised low-carbon emitting smelters in the world.
Glencore is an Anglo-Swiss multinational commodity trading and mining company with headquarters in Switzerland.
It is also the world’s largest aluminium trader with a footprint in over 35 countries.
Looking ahead, HLIB Research maintained its “buy” call on Press Metal with an unchanged target price of RM5.28 per share.
It also noted that Press Metal’s valuations are justified due to its favourable cost structure as bulk of its energy costs are locked in via a 15 to 25 year power purchase agreement with Sarawak Energy Bhd.
In addition, Press Metal enjoys the scarcity premium of a growing large-cap and investible aluminium proxy in Malaysia and it has a low carbon footprint as its smelters are hydro-powered.
