The company is seen benefiting from its sound cost management and solid free cash flow.
PETALING JAYA: Press Metal
Aluminium Holdings Bhd is expected to deliver a solid earnings trajectory, supported by strong aluminium prices and growing sales of its value-added products.
In addition, the company is also seen benefiting from its sound cost management and solid free cash flow.
According to Maybank Investment Bank (Maybank IB) Research, Press Metal would likely post a three-year earnings compounded annual growth rate (CAGR) of 12.9% from the financial year ended Dec 31, 2022 (FY22) to FY25.
The brokerage initiated coverage on Press Metal with a “buy” call and sum-of-parts-based target price of RM5.65.
“Its entrenched position as the largest aluminium smelter in South-East Asia, strategically located within close proximity to raw materials and having significant energy cost advantage via its hydro-powered facility in Sarawak are its strong attributes,” Maybank IB Research said of Press Metal.
The research outfit noted that the sustained spot aluminium price of US$2,500 (RM11,000) per tonne on the back of prolonged tight supply; growing sales from its value-added products; improved cost structure from higher alumina in-house supply and declining carbon anode price; and strong free cash flow to drive down gearing levels to 4% by FY25 should anchor its 12.9% FY22-FY25 three-year earnings CAGR projection for the company.
The brokerage said Press Metal’s stock was trading at a relatively palatable 26 times the estimated price-earnings ratio for FY23, which was one standard deviation below its five-year average of 33 times.
Maybank IB Research said Press Metal had a total extrusion and smelting capacity of 1.29 million tonnes per annum, with 100% of its smelting operations being hydro-powered, while its strategic holdings in Japan Alumina Associates and PT Bintan could provide more stable and cheaper alumina supply.
“Elevated energy costs since the second half of 2021 have resulted in the reduction of aluminium output, mostly across European Union smelters as closures prolonged.
“Additionally, the crackdown on Chinese coal-powered smelters – as the country moves to more sustainable energy – has also capped supply influx,” Maybank IB Research said
“This, combined with a steady annual demand growth of 3%-4% for aluminium products should support the aluminium price of around US$2,500 (RM11,000) per tonne in FY23-FY25,” it added.
Aluminium is also a key metal component for electric vehicles, solar energy and recyclable packaging, thus ensuring rising demand as sustainable products become more prevalent, it noted.
