RHB Research says it continues to favour basic materials companies that are the key beneficiaries of the China border reopening scenario, a strong US dollar and environmental, social and governance preposition standouts.
PETALING JAYA: The basic materials sector is expected to pick up gradually, underpinned by the easing inflationary pressure, tightness in global aluminium supply and potential demand from the reopening of China’s economy, says RHB Research.
In terms of strategy, the research house continues to favour basic materials companies which are the key beneficiaries of the China border reopening scenario, a strong US dollar and environmental, social and governance (ESG) preposition standouts.
Hence, its top pick is Press Metal
Aluminium Holdings Bhd given its proxy as a low-carbon-producing aluminium smelter in Asean, RHB Research said in its latest report.
Press Metal is also a beneficiary of the structural demand shift towards Asian smelters after European smelters’ production was impeded by the energy crisis, it added.
The research house said the group’s management is cautiously optimistic on the aluminium sector outlook following the reopening of China’s economy which accounts for 60% of global demand, ongoing tightness in global inventory and a favourable alumina-to-aluminium cost ratio.
Press Metal has also guided a hedging policy of 35% to 40% at the US$2,400-US$2,500 (RM10,831-RM11,283) per tonne for 2023, 30% at US$2,600 (RM11,734) for 2024 and 15% at US$2,700 (RM12,185) per tonne and above for 2025, it said.
“In the near term, we expect the London Metal Exchange aluminium prices to trade within the US$2,500-US$2,600 (RM11,283-RM11,734) per tonne band,” it added.
On cement outlook, RHB Research is cautiously optimistic on the sector, underpinned by the recent sharp correction in key raw material prices such as coal, which accounts for about 50% of the total production cost.
The other factor to consider is potential improvement in operating efficiency, post-industry consolidation in peninsular Malaysia, it added.
“We believe cement makers under our coverage, especially Cahya Mata Sarawak Bhd (CMS), are the prime beneficiaries under Budget 2023’s higher allocation for Sabah and Sarawak.
“We also expect demand for cement in Sarawak to provide earnings visibility through ongoing state construction projects such as Baleh Dam slated for completion by 2026, Sarawak coastal road and second trunk road and the Pan Borneo Highway,” it said.
The average bulk cement average selling price (ASP) recorded RM390 per tonne in January, up 11.1% month-on-month. The continuing upward trend is attributable to the elevated coal prices, it noted.
Post-financial year 2022 (FY22) results, RHB Research said companies under its coverage – Press Metal, CMS and Malayan Cement Bhd – reported below-expectation results.
“Despite a weaker fourth quarter due to softer realised aluminium prices, higher forex loss and elevated carbon anode price, Press Metal’s top line and bottom line recorded commendable double-digit growths, thanks to a higher production volume from the full commissioning of Samalaju Phase 3.
“Malayan Cement’s first half FY23 results were below expectations, recording a core net profit of RM13.2mil – as a result of elevated coal prices and weaker volume sold, offset by a higher cement ASP during the quarter.
“Meanwhile, CMS’ results were also below expectations, due to the impact from elevated coal prices and higher maintenance costs,” it said.
