“We see Press Metal as an indirect beneficiary of the global decarbonisation movement and increasing ESG policies across the world,” HLIB Research said.
PETALING JAYA: Press Metal
Aluminium Holdings Bhd is seen as an indirect beneficiary of the global push towards decarbonisation and increasing focus on environmental, social and governance (ESG) issues.
This is premised on the notion that aluminium is the preferred metal of use in the electric vehicle (EV) and solar photovoltaic (PV) sectors.
In its report, Hong Leong Investment Bank (HLIB) Research said while the prospects of aluminium as a metal remained challenging in the near term due to recession woes and the general decline in the global real estate markets amid the high interest rate environment, there were bright spots for aluminium in the medium to long term, as it served as the preferred metal to the ultra-fast growing EV and solar PV sectors.
“We see Press Metal as an indirect beneficiary of the global decarbonisation movement and increasing ESG policies across the world,” HLIB Research said.
“However, we highlight that Press Metal may still register mediocre quarters ahead due to subdued aluminium spot prices,” it added.
The brokerage retained its “sell” call on Press Metal after a disappointing financial result for the first quarter ended March 31, 2023 (1Q23).
It cut its target price (TP) for the counter to RM4.22 a share from RM4.29 previously. The revised TP was based on a price-earnings (PE) multiple of 20 times on rolled-over 2024 profits.
Press Metal reported a 33% lower net profit of RM282mil for 1Q23 compared with RM421mil in 1Q22, while revenue fell 21.6% to RM3.07bil against RM3.92bil a year ago primarily due to softening of metal selling prices.
Earnings per share fell to 3.44 sen in 1Q23 from 5.21 sen in 1Q22.
Despite the disappointing performance, RHB Research retained its “buy” call on Press Metal.
The brokerage, however, reduced its TP for the counter to RM5.38 a share from RM5.71 previously after cutting the earnings forecast for the company to reflect softening metal prices.
“While our 2023 earnings are trimmed by 4% to reflect the softening prices, we retain our call given the still low London Metal Exchange warehouse aluminium inventory, scarcity of low carbon-producing aluminium smelters in Asean, and global demand shift towards the Asian smelters amid production disruptions in Europe,” RHB Research said.
The brokerage noted China was the largest consumer and producer of aluminium, and its industrial metals consumption remained subdued.
It added the month-on-month slowdown in construction activities was further exacerbating concerns over the demand outlook for metals.
“While our economists expect a further slowdown in China’s economic activities, we expect a recovery in the US economy in the second half of 2023 and the strengthening of the US dollar against the ringgit, which we think supports the global commodities price outlook and Press Metal’s earnings,” it said.
“Based on our sensitivity analysis, every US$50 (RM231) change in the aluminium price impacts Press Metal’s earnings by around 4%, while every 5% change in the US dollar impacts bottom line by 4.2%,” it added.
Kenanga Research maintained its “outperform” call on Press Metal, with a lower TP of RM5.74 per share, as compared with RM6.30 previously, after cutting its earnings forecasts for the company for 2023-2024.
“China’s reopening has not significantly boosted demand for aluminium. However, the permanent shutdown of smelters powered by fossil fuels coupled with Western sanctions on Russia will keep the global aluminium supply in check,” the brokerage said.
Kenanga Research likes Press Metal for its structural cost advantage over international peers, given its access to low-cost hydro-power; secured alumina supply, with stakes in two alumina miners, namely, Japan Alumina Associate (40%) and PT Bintan (25%), which supply 80% of its requirements; and green investment appeal as a clean energy source producer.
