PETALING JAYA: Press Metal
Aluminium Holdings Bhd is expected to face challenges in the second half of the year (2H24) before charting commendable earnings growth in the financial year 2025 (FY25).
The appreciation of the ringgit against the US dollar and higher alumina costs is anticipated to further put pressure on the aluminium producer’s smelting margins in 2H24.
Hong Leong Investment Bank (HLIB) Research said it expects the ringgit’s strength to taper Press Metal’s 2H24 earnings.
It noted that London Metal Exchange Aluminium price had recovered to over US$2,600 per tonne since end-September due to easing monetary policies from the US Federal Reserve and China’s central bank.
“Even if it sustains at this level until year end, we think its earnings upside will be mitigated by the appreciating ringgit,” the research house said.
“For every 10% decrease in the US dollar-ringgit exchange rate (when the ringgit appreciates), the group’s net profit will lower by RM50mil for 2H24.
“Our economics team has a US dollar-ringgit exchange rate year-end target of 4.05, implying a ringgit appreciation bias for the rest of FY24, which may dent the group’s earnings in 4Q24.
“We also note that alumina prices were up 18% quarter-on-quarter in 3Q24, driven by persistently strained alumina supply due to output cuts by Alcoa and Rio Tinto’s refineries in Australia.
“The previously idled capacity of aluminium refineries in Yunnan are now back in full swing,” the research house added.
The research house, however, reckoned that higher alumina costs would put further pressure on the group’s smelting margins in 2H24.
Additionally, it said 9% of its smelting capacity was burned in the fire incident at phase three Samalaju in mid-September.
As the repair works would take around four months, this would translate to 3% sales volume loss in FY24, the brokerage noted.
Despite the headwinds of 2H24, the research house expects the group to record double-digit earnings growth in FY25, on account of stable aluminium prices due to easing monetary policies by major central banks and gradual economic recovery in China, as well as easing alumina price in 2025.
Maintaining a “buy” call on Press Metal with a target price of RM6.07 per share, HLIB Research said it liked the group due to its favourable cost structure as bulk of its energy costs are locked in via 15 to 25-year power purchase agreements, a solid track record as an investible aluminium proxy in Malaysia and a favourable environmental social as well as governance profile.
