Investment Highlights

• We maintain our HOLD call and FV of RM2.92, but cut our FY17F earnings forecasts by 12% (while maintaining FY18-19F earnings forecasts). Our FV is based on 13x its FD FY18F EPS, which is in line with the average forward PE of key global smelters.

• Press Metal’s 9MFY17 net profit missed expectations, coming in at only 66% and 69% of our full-year forecast and full-year consensus estimates respectively. We believe the variance against our forecast came largely from a lower aluminium ASP realised vs. our assumption.

• 9MFY17 net profit rose 24% YoY underpinned by: (1) higher selling prices realised; (2) a favourable exchange rate (i.e. weaker ringgit); and (3) an 8% increase in annual production capacity to 760K tonnes from 705K tonnes a year ago. Aluminium prices in the international market were boosted by supply constraints arising from production cuts in China to address environmental issues, particularly, pollution.

• We trim our FY17F aluminium ASP assumption by 2% to US$1,771/tonne (from US$1,806/tonne previously). Nonetheless, we are keeping our assumptions of US$1,950/tonne and US$2,145/tonne for FY18-19F respectively in light of the uptrend in aluminum prices in the international market.

• We continue to like Press Metal underpinned by: (1) the positive price outlook for aluminum in the international market backed by supply constraints and strong demand from the automotive industry and infrastructure projects; (2) its low cost structure compared to its peers owing to the cheap hydro power it has locked in over the long term; and (3) its strong management as evidenced in its ability to bounce back quickly from major production disruptions in the past.

• However, we believe the current share price has very much reflected its fundamentals.

Source: AmInvest Research - 22 Nov 2017