PETALING JAYA: The odds remain in Press Metal Aluminium Holdings Bhd’s favour, with ongoing catalysts including being a beneficiary of a structural demand shift and the favourable alumina-to-aluminium cost ratio, says RHB Research.
According to the research house, the relaxation of China’s Covid-19 restrictions has fuelled optimism of a potential demand recovery.
The London Metal Exchange (LME) aluminium price has also rebounded to about US$2,600 (RM11,071) per tonne, surpassing its expected trading range of US$2,300 to US$2,500 (RM9,793 to RM10,645) per tonne following the reopening of China’s borders, according to RHB Research in its latest report.That said, the official Manufacturing Purchasing Manager Index (PMI) rose to a four-month high of 50.1 in January, up from 47 in December 2022, according to China’s National Bureau of Statistics.
Therefore, RHB Research said: “We expect Press Metal
’s timely shift to hedge 35% of its forward sales in 2023 from 60% in 2022, to accord it with ample upside from the strengthening of aluminium prices.”
On the group’s fourth quarter of 2022 (4Q22) preview, the research house expects 4Q22 top line year-o-year (y-o-y) growth to moderate to 1% in view of the softer aluminium prices.
“However, 4Q22 core earnings y-o-y growth should rise 16% as a result of easing alumina price. We expect the current supply tightness caused by the continued Russia-Ukraine war, the mature stage of the monetary cycle and the reopening of China’s economy to continue lending support to aluminium prices,” it added.
RHB Research has also lowered its 2022 earnings estimates on Press Metal by 10% after factoring in a lower premium assumption.
“We are lifting 2023-2024 earnings estimates by 6% and 9% in view of the rebound in aluminium prices coupled with a favourable cost ratio,” it noted.
The research house’s aluminium price forecast is now at US$2,600 (RM11,071) per tonne in 2023 from US$2,400 (RM10,219) previously.
RHB Research noted every US$50 (RM212.90) appreciation to aluminium prices could increase Press Metal’s earnings by 4%.It has also maintained a “buy” call on the stock, with a new target price at RM6.18, representing a 19% upside from RM5.66 previously.The research house said the key drivers for Press Metal include its proven low-cost model, which helps to keep its smelters in the first quartile of the global production cost curve.
Separately, the bottoming out of aluminium prices and weak ringgit should directly boost the bottom line.
Key risks to the group include a plunge in aluminium prices and a sharp weakening of the US dollar may hurt profitability, interruption in power supply to its smelting plant, a prolonged Covid-19 incident that undermines global economic growth and consequently, primary aluminium demand.
