KUCHING: Press Metal Bhd’s (Press Metal) earnings prospects for the financial year 2017 (FY17) and FY18 have been viewed positively by analysts, underpinned by its higher, effective full-year capacity, coupled by stronger price expectations.

Kenanga Investment Bank Bhd’s research arm (Kenanga Research) in a recent report, pegged a positive view on Press Metal’s earnings growth prospects which is expected to grow 51 per cent year-on-year (y-o-y) due to the group’s higher, effective full-year capacity (an increase of 27 per cent to 760,000 metric tonnes) coupled with stronger price expectations (an increase of nine per cent to US$1,750 per metric tonne).

It also noted that Press Metal had said that China’s move to curb aluminum production capacity should tilt the market towards a “deficit situation”, which bodes well for price sustainability.

“Recall also that Press Metal aimed to improve its margins on the topline by upgrading its billet production capacity, which offers better premiums, and at the same time streamlining production cost through the Samalaju Port expansion, as well as constructing a conveyor belt to directly transport alumina into its smelting plant.

“All-in, we expect the upgrades to improve Press Metal’s FY17 and FY18E operating margins to 15.7 and 17.4 per cent, from 12.9 per cent in FY16,” it projected.

On Press Metal’s performance in the first quarter of 2017 (1Q17), Kenanga Research noted that the group’s core net profit (CNP) of RM149 million came within expectations.

It added that Press Metal saw a significant capacity jump.

“Y-o-y, the first three months of 2017 (3M17) core net profit soared 1.8-folds on the back of higher production volume, as the second Samalaju plant reached full capacity.

“At the same time aluminum cash prices rose 22 per cent to US$1,850 per metric tonne (MT),” it said, noting that the 1Q16 net profit included insurance claims of RM50 million due to a 2015 fire at the first Samalaju plant.

On a quarterly basis, the research team noted that Press Metal’s 1Q17 CNP was flat (at minus one per cent) against 4Q17, given limited capacity changes.

“Operating margins were relatively similar at 12.1 per cent, versus 12.8 per cent previously. While aluminum cash prices were slightly higher (an increase of eight per cent) we expect the movement to be reflected in later quarters, due to Press Metal’s forward selling policies of more than 50 per cent of production,” Kenanga Research added.

Overall, it commented, “We remain ‘outperform’ on Press Metal in view of the bullish price environment, higher productivity, and continued margin expansion efforts by the management.”