KUALA LUMPUR (April 4): Shares of Press Metal Aluminium Holdings Bhd, the largest aluminium smelter in Southeast Asia by capacity, surged 7.8% on Thursday to hit a one-year high of RM5.14, as investors bet on rising aluminium prices boosting the group's earnings.

The counter was among the top gainers on Bursa Malaysia on Thursday. It pared earlier gains to close at RM5.12 — still up 35 sen or 7.3% from its previous close — valuing the group at RM42.19 billion. In less than a month, the stock has gained 13.7% from this year’s low of RM4.50 on March 6.

The stock has risen 6.84% year to date from RM4.79.

London Metal Exchange's (LME) aluminium prices rebounded from this year’s low of US$2,159 on Jan 22 to its one-year high of US$2,421 on Thursday, posting a gain of 12.51% within the period.

Bloomberg data showed that six research houses tracking Press Metal have a “buy” call, five a “hold” recommendation and one a “sell” rating, with an average 12-month target price of RM5.15.

The counter has risen above some price targets, but has yet to test other higher targets such as Nomura’s RM5.80, JP Morgan’s RM5.70, Citi Research’s RM5.60 and UOB Kay Hian’s RM5.50.

UOB Kay Hian, which rated a "buy" call on Press Metal, stated that the recovery demand and tight inventory will support LME aluminium prices, with demand for aluminium in China driven by solar power and new energy vehicle industries.

The expected interest rate cut by the US Federal Reserve could further accelerate the recovery of global aluminium demand, the research house said in a report.

On the supply side, the research house said LME’s aluminium stockpile remains relatively low at 549,000 tonnes towards end-2023, while China’s aluminium stockpile was around 434,000 tonnes, with no major import arrival and aluminium output impacted negatively after Yunnan’s production was cut in the fourth quarter last year.

“Additionally, the ban on Russia's metal could lend further strength to the LME aluminium prices,” it added.

Based on the research house’s sensitivity analysis, every US$100 per tonne increase to its current spot aluminium price assumption of US$2,400 per tonne in 2024 would increase Press Metal’s earnings by 16% annually, assuming alumina cost of US$360 per tonne (implying an around 15.5% cost ratio) and carbon anode prices of 6,000 yuan per tonne.

As of end-February 2024, Press Metal had hedged 32% of its aluminium price at US$2,500 per tonne for 2024, 20% between US$2,500 and US$2,600 per tonne for 2025 and a few per cent at US$2,600 per tonne for 2026, it noted.

Press Metal’s net profit fell 13.68% to RM1.21 billion for the financial year ended Dec 31, 2023 (FY2023) from RM1.41 billion in FY2022, as revenue fell 12% year-on-year to RM13.8 billion amid a softening of metal prices.