Lower earnings expected for Press Metal in line with normalising prices

PETALING JAYA: With the normalisation of aluminium spot prices, Press Metal Aluminium Holdings Bhd’s earnings are expected to ease in tandem, according to RHB Research.

The research firm said it has trimmed the group’s financial years 2023-2025 forecast earnings by 6% to 9% in view of this.

However, RHB Research has maintained a “buy” call on the stock due to the still-low London Metal Exchange (LME) warehouse aluminium inventory and scarcity of low carbon-producing aluminium smelters in Asean, which would benefit from the “green push” from electric vehicles.

There is also a global demand shift towards Asian smelters amid production disruptions in Europe, it added.

“Western European smelters are unlikely to see a comeback in the near-term due to the volatile aluminium prices, inconsistent power supply, and the strenuous process of restarting the plant. This shortfall is insignificant, due to their minimal contribution (circa 4%) to global supply, being cushioned by the production recovery in China,” said RHB Research.

The expected capacity from China is likely to lead to an aluminium surplus for 2024-2025, should the power-rationing policy in Europe be relaxed, it added.

“The consumption of industrial metals in China – the world’s biggest consumer and producer of aluminium – should remain subdued, and the month-on-month slowdown in construction activity there may further exacerbate concerns over the demand for metal.

“Note that RHB economists are expecting a further slowdown in China’s economic activity, but they also think that a recovery in the US’ gross domestic product growth in the second half of the year may support the outlook for global commodity prices,” said the research firm.

It noted the LME aluminium price averaged US$2,400 (RM10,890) per tonne in the first quarter of 2023 versus US$3,254 (RM14,765) per tonne in the first quarter of 2022.

According to RHB Research, its sensitivity analysis showed that every US$50 (RM226.87) change in the aluminium price would impact Press Metal’s earnings by about 4%, and every 5% change in the US dollar-ringgit rate would impact its net profit by 4.2%.

That said RHB Research maintains a “buy” rating on Press Metal with a lower target price of RM5.71, from RM6 before.

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