Investment Highlights

• We raise our FY18-20F earnings by 20%, 19% and 8% respectively, upgrade our FV by 36% to RM4.10 (from RM3.00), but maintain our HOLD call. Our FV is based on 15x revised FD FY19F EPS.

• In a turn of events, Kremlin spokesman Dmitry Peskov told reporters on a conference call yesterday that the Russian government may consider, as one of its options, to nationalise Russian aluminium giant Rusal to “help” the company. To recap, Rusal and its controlling shareholder Oleg Deripaska have been placed under the US sanction list, and Rio Tinto, one of the largest producers of alumina in the world, has invoked force majeure for certain contracts including 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.

• This stoked fears of supply shortages in aluminium and its raw material alumina in the market, propelling their prices to multi-year highs. The prices of aluminum and alumina eased since yesterday on the back of the news. We believe the latest news is giving the market the comfort that with the Russian government stepping into the picture, Rusal’s production capacity will not be put off-line due to solvency issues. Meanwhile, there is a possibility the US may eventually back down from the sanctions, as prolonged high aluminium prices will hurt aluminium-consuming industries in the US such as food & beverages, auto, construction and aerospace.

• We raise our sales volume assumption by 10% annually to 760K MT but keep relatively unchanged our FY18-20F ASP forecasts of US$2,050/MT, US$2,450/MT and US$2,500/MT, and alumina price forecasts of US$380/MT, US$490/MT and US$520/MT respectively.

• Our investment case for Press Metal is premised on the following: 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.

• We believe the current share price has reflected its strong fundamentals.

Source: AmInvest Research - 20 Apr 2018