- We maintain HOLD on Press Metal Bhd with a higher fair value of RM2.25/share (vs. RM2.15/share earlier), as we now peg our 11x PE to FY16F earnings.

- Excluding EIs – i.e. unrealised forex loss (RM113.6mil), unrealised derivative gains (RM63mil) and insurance compensation gain (RM20mil) – Press Metal reported core net earnings of RM173mil for the 9M period. Annualised, we deem it to be broadly in line with our and market expectations.

- Sequentially, core earnings (excluding unrealised gain on derivatives and insurance claims) fell 88% on the back of weaker aluminium prices and premiums during the quarter.

- In 3Q, aluminium price averaged ~USD1,618/MT (vs. US1,767/MT in 2Q) while global premiums ranged between USD85-USD175/MT (vs. USD165-USD296/MT in 2Q).

- While the Samalaju plant was shut down for a month following a fire incident in May, topline growth was sustained at 3% for the 9M period. The decline in volume was mitigated by the stronger USD vs. MYR and it had also sourced metal from the open market in order to fulfil orders. The smelter is expected to be fully ramped up by year-end.

- Press Metal also declared a third single-tier interim dividend of 1.5sen (total payout YTD: 6 sen).

- Looking ahead, we expect aluminium prices and premiums to remain depressed due to global surplus of the metal. YTD, aluminium price has fallen 20% to USD1,450/MT (average: USD1,680/MT). Prices are expected to remain depressed as Chinese smelters continue to increase capacity and export the metal. YTD Sept, China’s outbound aluminium shipments rose 18%.

- Note that Alcoa and Rusal are forecasting global surplus of 551,000MT and 373,000MT, respectively, for 2015. Looking ahead into 2016, Bloomberg Intelligence sees a net addition of 3.2mil tonnes of aluminium globally (+5% YoY). Thus, we expect prices to remain depressed.

- To this end, we have lowered our all-in aluminium price assumption for FY16F-17F to USD1,800/MT (from USD1,850/MT previously). This results in 7%-10% reduction in earnings for FY16F-17F. Our numbers for FY15F are unchanged.

- While Press Metal’s energy costs are among the lowest globally (due to competitive power tariff rates), we maintain our HOLD view on the stock given the suppressed aluminium prices.

Source: AmeSecurities Research - 27 Nov 2015