Press Metal facing some headwinds

KUALA LUMPUR: AmInvestment Research maintained its hold call and lowered its fair value on Press Metal Aluminium Holdings Bhd to RM3.23 from RM3.64 previously, on the back of headwinds to earnings including escalating production cost and the weakening of the US dollar against the ringgit.

The research firm noted that the price of carbone anode, a main raw material for aluminium production, surged almost 70% in 2017. 

It said the increase was influenced by hike of costs in its raw materials, which are petroleum coke and tar pitch, as well as a production curb of commodity products in China during winter.

"As such, we revised up our carbon anode cost price in FY18-20F by 10%, 5% and 8% to US$560, US$600 and US$660 respectively."

AmInvestment Research also estimates that for every 1% drop in the US dollar-ringgit exchange, the company's overall earnings will be eroded by 2%. 

"We revise our USD/MYR assumptions to 4.10 in FY18F and 4.00 in FY19-20F, from 4.35 in FY18F and 4.20 in FY19-20F previously," it said.

"Meanwhile, we are keeping our aluminium ASP assumptions at US$1,950/tonne, US$2,145/tonne and
US$2,250/tonne for FY18-20F respectively, against a backdrop of firm aluminum prices in the international market. 

"There is a downside risk to aluminium prices, assuming the US is to impose a 10% tariff on aluminium imports as planned"

The research firm said the tariff could prompt aluminium producers in the US to restart their idle capacities, which are currently not commercially viable given current international prices.

"We estimate that the US idle aluminium production capacity stands at about 1mil tonnes per annum, translating to about 50-60% of the total installed aluminium production capacity in the US."