KUALA LUMPUR (Nov 29): Analysts maintained their recommendations on Press Metal Aluminium Holdings Bhd, despite the integrated aluminium producer’s earnings for the third quarter ended Sept 30, 2023 (3QFY2023) missing market consensus forecasts, with expectations that aluminium prices will remain subdued.

In a note on Wednesday, HLIB Research said Press Metal’s core net profit of RM913.6 million for the nine-month period ended Sept 30, 2023 (9MFY2023) missed both the research house’s full-year expectations at 61%, and the consensus estimate at 70%.

“The core bottom line slipped 3% year-on-year (y-o–y) and 21% year-to-date (YTD), as average London Metal Exchange (LME) aluminium spot prices were down 6% y-o-y at US$2,203 (RM10,233) per tonne in 3QFY2023 (versus US$2,359 per tonne in 3QFY2022), and down 22% YTD at US$2,308 per tonne in 9MFY2023 (versus US$2,832 per tonne in 9MFY2022),” the research house said.

HLIB maintained its “sell” call on Press Metal, with a higher target price (TP) of RM4.20 (previously RM4.03), based on a price-earnings ratio (PER) of 22.5 times, pegged at -1 standard deviation of its five-year historical mean PER on forecast FY2024 profit.

“We like Press Metal due to: i) its favourable cost structure, as the bulk of its energy costs are locked in via a 15-25 year power purchase agreement with Sarawak Energy Bhd; ii) its solid track record as an investible aluminium proxy in Malaysia; and iii) its favourable ESG (environmental, social and governance) profile as its smelters are hydro-powered,” the research house said.

“However, we are tactically bearish on Press Metal, as we believe aluminium prices are capped in the near term, as a cloudy global economic outlook and slowing construction activities continue to weigh on demand growth for aluminium moving into 2024. For the time being, we choose to stay on the sidelines, and await signs of an inflexion point for the aluminium market,” he added.

Meanwhile, Press Metal’s 9MFY2023 core earnings fell within the expectations of Kenanga Research at 73% and Maybank Investment Bank (Maybank IB) at 75%. Kenanga reiterated its “market perform” call, with an unchanged TP of RM5, while Maybank IB maintained its “hold” call, with an unchanged TP of RM4.90.

“Bloomberg Intelligence (BI) expects aluminium demand growth to remain unexciting at +1%/+3%/+2% for 2023-2025 respectively. Growth will be primarily driven by the global greenhouse gas emission reduction drive, which will boost electric vehicle penetration and light-weighting across all vehicle intensities, compensating for lacklustre demand from the global construction sector,” Maybank IB said in a note on Wednesday.

“BI also forecasts the global aluminium market to swing into a small surplus (where global supply is greater than demand) of less than 500,000 tonnes per annum for 2023-2025,” it added.

Nonetheless, Maybank said Press Metal’s forward hedges of US$2,500 for FY2024 and US$2,600 for FY2025 were done at favourable prices, versus the research house’s LME aluminium spot price assumptions of US$2,300 for FY2024 and US$2,350 for FY2025.

Read also:
Press Metal's 3Q profit eases 3.1% amid softer metal prices