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Monday, February 17, 2020

Press Metal could see explosive earnings growth, says Kenanga

Monday, 17 Feb 20209:08 AM MYT

KUALA LUMPUR: Press Metal Aluminium Holdings Bhd may return to explosive earnings growth on the back of the new capacity at Samalaju Phase 3, better alumina pricing and supply access via its stake in PT Bintan, says Kenanga research.

"We believe investors should look beyond the virus scare and instead focus on its explosive earnings growth next year," it said in a Monday note.

Kenanga believes investors should focus on FY21 when the Samalaju Phase 3 will contribute its full-year impact.

"The Phase 3 expansion at Samalaju smelting plant will bring up 42% of total installed capacity to 1.08 million when the plant is commissioned in October this year," it said.

Meanwhile, the normalisation of the price-to-percentage of aluminium price to 16% from more than 30% previously could see Press Metal's profit margins improve.

Kenanga noted that Press Metals's profit margins were shrinking over the past two years owing to a supply disruption issue that pushed alumina prices to more than double the usual.

Further, the upstream acquisition of two supply chain refineries will ensure raw material supply certainty while the acquisition of PT Bintan enabled transport cost savings.

Kenanga expects FY21E earnings to jump 45% year-on-year to RM902mil on the back of a higher aluminum price assumption of US$1,900/MT.

For FY19, the research house trimmed its forecast by 6% given the slight dip in aluminium price and the strengthening of the ringgit in 4QFY19.

It also cut FY20 forecast net profit by 27% as its aluminium assumption of US$2,000 per metric tonne was too optimistic.

It lowered its aluminium price forecast to US$1,800 per metric tonne.

According to the research house, the LME aluminium price fell 9% to a three-year low of US$1,658 per metric tonne within 10 days after the Covid-19 infection turn severe.

However, the price has since recovered to above the US$1,700 level and Kenanga expects prices to bottom in 2Q20 with a recovery in 2H20.

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