• Press Metal’s 1QFY18 net profit of RM141.6m was in-line with our and consensus forecast with 18.4% and 19.6% respectively.

• Net profit for 1QFY18 declined 4.3% yoy due to high raw material prices and weakening of USD

• Press Metal declared first interim DPS of 1.5 sen

• We maintain our forecast with TP of RM5.69.

1QFY18 earnings within estimate

Press Metal begins its FY18 with a decline in net profit by 4.3% yoy to RM141.6m. However, the net profit is within our and consensus estimate, coming in at 18.4% and 19.6% of FY18E. We attribute the negative earnings growth mainly on high operation cost due to the increase in raw material prices combined with the weaker US dollar. Its EBITDA margin was under pressure with 16.1% down 1.3ppts from 1QFY17. We expect earnings to catch up in the subsequent quarters, particularly from Leader Universal Aluminium contribution coming in.

QoQ net profit decline due to low revenue and high tax

On qoq basis, both revenue and net profit decreased by 0.9% and 16.3% respectively. These were mainly due to higher tax incurred with 47% increased QoQ. Additionally, the weakening of US dollars also contributed in revenue decline.

Outlook provides comfort

Recall during previous analyst briefing, management has guided that it would pursue its strategy to streamline into value added products to provide revenue insulation based on the pricing components and increasing demand. While we note that there is uncertainty on the global aluminium outlook, the resilience of aluminium prices thus far will benefit Press Metal.

Dividend declared

A first single tier interim dividend of 1.5sen was declared, similar to 1Q17. We estimate a total of 9.7sen dividend per share to be paid for the whole year. This translates to a dividend yield of 2%.

Reiterate BUY call with TP of RM5.69

We maintain our FY18/19/20 earnings forecast. We believe raw materials price, alumina will decline in future whilst the prices of aluminium are expected to be maintained above USD2000 per tonne. We look forward to its structural earnings growth from the recent acquisition of Leader Universal Aluminium. We reiterate our BUY call with TP of RM5.69.

Source: BIMB Securities Research - 18 May 2018