Investment Highlights

• We raise our FY19-20F net profit forecast by 1%-3% and maintain a HOLD recommendation on Press Metal with a higher FV of RM3.79 (from RM3.77 previously). The RM3,79 FV is based on 18.5x FD FY19F EPS which is: (1) in line with our forward target P/E for the FBM KLCI; and (2) at a premium to the 10x average forward P/E of key global aluminum smelters to reflect Press Metal’s favourable cost structure with the bulk of its energy cost (from hydro power) locked in at very competitive rates over the long term.

• The earnings upgrade is reflected by our revision on alumina price assumption and the outlook on its value-added products. However, we still maintain our forecast for the average selling price (ASP) for aluminum.

• Key points from the group’s analyst briefing on Wednesday: 1) Press Metal guided for aluminium prices to stay above US$2,000/tonne, but not substantially higherover the short term. It estimated that China (the largest aluminium producer and consumer in the world) will have a 1mil-tonne surplus of aluminium in 2019 (vs. a slightly higher 1.7mil tonnes based on our research). However, it believed there will be a deficit of 1.5mil tonnes outside of China this year (we are unable to verify this information). Nonetheless, Press Metal’s guidance for aluminium price is consistent with our assumption of US$1,900-2,100/tonne in FY19-21F, largely driven by a higher production rate vs. consumption rate in China. Industry exports project aluminium in China to grow at 8% compared with a consumption of only 5% in 2019. 2) Meanwhile, we forecast alumina price will be softer on the back of a new refinery that will alleviate a production shortage. We now project average FY18- 20F alumina cost to be 10% lower at US$450-500/tonne from US$450-550/tonne previously. The downward revision in our projection for alumina price is backed by the new Al-Taweelah alumina refinery in the UAE with a capacity of 2 million tonnes per annum. The production is expected to begin in 1HFY19 and is expected to cushion the global demand shortage. Recall, that the world’s largest alumina refinery in Brazil, Hydro Alurnote’s has been in a full curtailment resulting in an estimated 6mil-tonne shortage per annum.

Source: AmInvest Research - 28 Feb 2019