Investment Highlights

• We maintain our forecast, HOLD call but increase our FV to RM3.64 (vs. RM2.92) as we roll forward our valuation base year to FY19 from FY18. Our FV is based on 13x its FD FY18F EPS, which is in line with the average forward PE of key global smelters.

• The company’s FY17 core net profit of RM603mil met our forecast and consensus estimates.

• Press Metal’s FY17 net profit grew 25% YoY underpinned by: 1) higher selling prices realized; and 2) an 8% increase in annual production capacity to 760K tonnes from 705K tonnes in FY16. Aluminium prices in the international market were boosted by supply constraints arising from production cuts in China to address environmental issues, particularly, pollution.

• These were partially offset by the strengthening of the MYR against the USD in 4Q17 which slightly dented the company’s margins. Press Metal’s primary aluminium products are sold in USD.

• Meanwhile, we are keeping our aluminium ASP assumptions at US$1,950/tonne, US$2,145/tonne and US$2,250/tonne for FY18-20F respectively, in light of the uptrend in aluminum prices in the international market.

• On the other hand, the company has proposed acquisition of 100% equity interest in Leader Universal Aluminium Sdn Bhd (LUA) through its 80%-owned subsidiary, Press Metal Bintulu Sdn Bhd from HNG Capital Sdn Bhd, for a cash consideration of RM96 million. Upon the successful acquisition, Press Metal’s annual aluminium rod production capacity is expected to increase to 148K MT p.a. from 48K MT p.a. currently. This will further boost Press Metal’s earnings as aluminium rods (i.e. value-added products) command greater margins than aluminium ingots.

• We continue to like Press Metal premised upon: 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 - 28 Feb 2018