Press Metal Aluminium Holdings Bhd
(Nov 29, RM4.70)
Maintain outperform with an unchanged target price of RM5.50: Press Metal Aluminium Holdings Bhd’s third quarter ended Sept 30 of financial year 2019 (3QFY19) results matched expectations, with its core profit rising 29% sequentially to RM137.5 million, bringing its core profit for the nine months (9MFY19) to RM354.7 million — 67% and 66% of house and street’s FY19 estimates as we expect a stronger ending for 4Q given falling alumina prices.

It declared a third interim net dividend per share (NDPS) of 1.25 sen for 3QFY19 — the same as that for 2QFY19 but lower than the two sen paid for 3QFY18. This brought the NDPS for 9MFY19 to 3.75 sen against five sen paid for 9MFY18.

Despite its revenue dipping 1% to RM2.12 billion from RM2.13 billion, its core earnings for 3QFY19 leapt 29% quarter-on-quarter (q-o-q) to RM137.5 million, from RM106.5 million, due to stabilising alumina and carbon anode prices, especially as alumina prices normalised to 16% to 17% of aluminium London Metal Exchange (LME) price currently above 20% since 2QFY18. However, the slight decline in revenue was primarily due to a lower aluminium market price down 1.3% q-o-q to US$1,872.80 per tonne.

Year-on-year, its 3QFY19 core profit plummeted 25% from RM183.2 million to RM137.5 million, while revenue declined 11% from RM2.38 billion, largely attributed to the aluminium market price down 14.3% from US$2,186.2 per tonne for 3QFY18. The lower earnings were partly cushioned by lower raw material costs.

Its 9MFY19 core profit contracted 28% to RM354.7 million, from RM490 million previously, on a 7% decline in revenue, owing to the same reasons as the aluminium market price fell 15.5% to US$1,923.8 per tonne, from US$2,278.80 per tonne for 9MFY18.

While alumina prices have normalised to 16% to 17% of the aluminium LME price now at about US$285 per tonne from above US$300 per tonne level in 3QFY19, the benefit of the drop in alumina prices should be fully felt from 4QFY19.

For FY20 and FY21, we expect a sturdy earnings growth for Press Metal Aluminium on a 42% smelting capacity expansion, cheaper alumina prices and a rising sales composition of high-value products, for instance, billet and wire rod. — Kenanga Research, Nov 29