KUALA LUMPUR (Jan 15): Hong Leong Investment Bank (HLIB) Research has upgraded its rating on Press Metal Aluminium Holdings Bhd to "hold" from "sell", and raised its target price (TP) to RM4.38 from RM4.20.

This adjustment is based on a price-to-earnings (PE) multiple of 22.5 times after considering a revised FY2024 forecast profits, the research house said in a note on Monday.

HLIB anticipates Press Metal's core earnings in the fourth quarter of 2023 (4QFY2023) to range between RM305 million and RM325 million, contingent on the LME aluminium spot prices at US$2,193 (RM10,185) per tonne in 4Q 2023, compared to US$2,159 per tonne in 4Q 2022.

"In turn, Press Metal's FY23 core net profit would range from RM1.19 billion to RM1.21 billion (-16% to -15% year-on-year), representing 98%-99% of our FY23 forecasts," the research note added.

Looking ahead to 2024, HLIB suggests that Press Metal’s risk and reward profile has turned balanced, supported by the growing solar photovoltaic (PV) and electric vehicle (EV) sectors, which continue to drive demand for aluminium, offsetting the lacklustre construction and property sectors.

HLIB also said that China's construction and automotive industries are expected to fuel a 2.8% growth in aluminium consumption in 2024, supported by policy measures in the property sector, increasing solar capacity, and rising EV sales.

Despite a projected 2% slower output growth in 2024, HLIB believes these factors will reduce China's market surplus by half to 374,000 tonnes.

"Nonetheless, a modest surplus in the aluminium market is expected in 2024, and this should keep a lid on prices due to insufficient demand-side catalysts," the note added.

HLIB has adjusted its earnings forecast for Press Metal upwards by 1.5% for FY2023, 4.3% for FY2024, and 3.9% for FY2025, citing a reduction in carbon anode cost assumptions.

However, HLIB maintains its hedging assumptions for FY2023 (30% hedged at US$2,300), FY2024 (30% at US$2,500), and FY2025 (20% at US$2,600), with corresponding average spot price assumptions.