Non-ferrous metal players expected to shine

KUALA LUMPUR: Non-ferrous metal producers Press Metal Aluminium Holdings Bhd and OM Holdings Bhd are expected to deliver decent profits as the prices of non-ferrous metal are projected to stabilise at current levels.

Kenanga Research said there is expected to be continued demand for the metals as fossil-fuel smelters are decomissioned while Western sanctions against Russian aluminium offer support.

The research firm, which has an "overweight" call on the building materials sector, said it has a preference for non-ferrous metal players, which include manufacturers of aluminium, ferrosilicon (FeSi) and silicomanganese (SiMn).

It said prices of the metals are expected to stabilise at current levels given that demand for aluminium has yet to increase significantly despite China's efforts to stabilise its property market.

"We also gathered that aluminium smelters in China have not increased their production despite China’s reopening and the easing in fuel cost," it added.

LME aluminium prices averaged at US$2,347 a tonne, which is 1% lower than US$2,364 a tonne in 2HCY22.

Year-to-date, FeSi and SiMn prices averaged at US$1,045 a tonne and USD1,577 a tonne, which are 2% and 6% lower than USD1,063 a tonne and USD1,682 a tonne registered in 2H22, respectively.

The research firm has "outperform" calls on its top sector picks Press Metal and OM with target prices of RM5.74 and RM2.95 respectively.

Kenanga however expects steel manufacturers to remains in the doldrums due to the absence of significant stimulus and a soft property market in China.

"We gathered that the roll-out of large-scale infrastructure projects and a more meaningful pickup in the property sector in China are more likely to materialise towards the later part of 2023," it said.

In May, the local long steel price declined to about RM2,911 a tonne (-7% month-on-month) while local flat steel price declined to RM3,670 a tonne (-6% month-on-month) amid the slow demand recovery and excess production in China.

As a result, the research firm predicts that local steel players Ann Joo Resources Bhd (underperform; TP: RM0.75) and United U-Li Corp Bhd (market perform; TP: RM1.15) will not be able to significantly raise prices to boost margins.

It said Engtex Group Bhd (outperform; TP: RM0.58) could benefit from the revival of water porjects amid the roll-out of public infrastructure projects; however, a significant portion of its revenue comes from low-margin generic steel products.

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