HLIB Research foresees aluminium surplus between 2023 and 2025.
PETALING JAYA: Press Metal
Aluminium Holdings Bhd, whose latest earnings missed expectations, may face a series of lacklustre quarters ahead.
Hong Leong Investment Bank (HLIB) Research, which expects a gloomy outlook for the largest aluminium producer in South-East Asia, said subdued prices of aluminium in the spot market would increase pressure on Press Metal.
“In the near term, the outlook for aluminium as a metal poses challenges, primarily attributed to concerns surrounding economic slowdown and the overall decline in global real estate markets, driven by the prevailing high interest-rate environment,” it said in a report.
HLIB Research maintained its “sell” call on Press Metal and lowered its target price to RM4.03 per share from RM4.22 previously.
The negative outlook is premised on the weak near-term earnings ahead.
Press Metal recorded a core net profit of RM605.7mil in the first half of financial year 2023 (1H23), a decline of 27% year-on-year (y-o-y).
The results came in below expectations at 41% of HLIB Research’s consensus full-year forecast. It is also 40% of the consensus forecast.
Core net profit was down 27% y-o-y as average London Metal Exchange aluminium spot prices dropped 21% y-o-y to US$2,283 (RM10,588) per tonne in the second quarter of 2023.
The spot prices also fell by 23% y-o-y to US$2,361 (RM10,950) per tonne in 1H23.
Looking ahead, HLIB Research foresees aluminium surplus between 2023 and 2025.
Quoting Bloomberg Intelligence, the research house said global aluminium output is expected to increase by 2% in 2023 and would exceed the demand growth of 1% and bring the market to a surplus of 156,000 tonnes.
It also estimated the market will sustain a surplus of 238,000 tonnes and 156,000 tonnes in 2024 and 2025, respectively.
“Bloomberg Intelligence also expects China’s aluminium demand to grow 2% in 2023, improving modestly from 1% growth in 2022.
“China’s 16-point property rescue package could fuel property completions and sales, yet an imminent boom is unlikely to happen as home buyer concerns around developers’ liquidity pressure and lacklustre investment demand remains a drag,” it said.
Despite the challenges ahead, HLIB Research sees bright spots in aluminium in the mid and long term as it serves as the preferred metal to the ultra-fast-growing electric vehicle and solar photovoltaic sectors.
“We see Press Metal as an indirect beneficiary of the global decarbonisation movement and increasing environmental, social and governance policies across the world.
“However, we highlight that Press Metal may still register mediocre quarters ahead due to subdued aluminium spot prices,” it said.
