Investment Highlights

• We cut our FY18-20F earnings by 13%, 7% and 11% respectively, and trim our FV by 7% to RM3.00 (from RM3.23) for Press Metal. Our FV is based on 13x revised FD FY19F EPS, which is in line with the average forward PE of key global smelters. We maintain our HOLD call.

• Rio Tinto, one of the largest producers of alumina in the world, has invoked force majeure for certain contracts that probably include alumina shipments from a refinery it operates with Rusal in Australia (Rusal owns a 20% stake in Queensland Alumina Limited with annual capacity production of 3.95mil MT), bauxite shipments to Rusal alumina refinery in Ireland (Aughinish Alumina Refinery’s annual production capacity of ~2mil MT) as well as alumina from that refinery to smelters in Europe. Not helping either is news that Brazil-based refiner Norsk Hydro Alunorte was forced to halve its alumina production (annual production 5.8mil MT) as it was accused of contaminating water supply surrounding the site in Brazil. Aluminium smelters may face output production disruption as its main raw material alumina supply is likely to fall further.

• This follows the recent imposition of sanction by the US government on 17 Russian entities, including to the largest non-Chinese aluminium producer, Rusal PLC, with an annual aluminium production capacity of 3.7mil MT. As traders scramble for aluminium supply not under sanction in the global market, aluminium prices have soared by 25% for the last two weeks.

• We do not expect Press Metal to be spared from the turmoil in the global aluminium industry. Press Metal is likely to be forced to reduce its annual production amid the global alumina supply shortage. We lower our sales volume assumption by 10% annually to 685K MT but increase our ASP forecast by 3%, 12% and 12% to US$2,000/MT, US$2,400/MT and US$2,500/MT respectively on the back of an uptrend of alumina prices. As such we revised up our alumina price in FY18-20F by 12%, 33% and 33% to US$380/MT, US$490/MT and US$520/MT respectively while other raw material, other operating costs and FX assumptions remained unchanged.

Source: AmInvest Research - 19 Apr 2018