• Press Metal’s 1H18 headline net profit of RM311m was below our and consensus forecast at 40% of FY18 net profit, due to exceptional item (EI).

• Net profit for 2Q18 was reported at RM161m (+7% qoq) which included forex and derivatives loss of RM83m for the quarter.

• Press Metal declared second interim DPS of 1.5 sen

• We maintain our forecast with TP of RM5.69. We will provide further update post-company visit today.

Core 1H18 earnings within target

Press Metal’s 1H18 core net profit is within our and consensus estimate, coming in at 50% and 51% of FY18E, after stripping out total forex and derivative loss RM74m. As expected, the positive earnings growth mainly attributed to Leader Universal Aluminium contributions on its value added products sales combined with favourable metal prices on its premium pricing components. Press Metal’s EBITDA margin inflated to 18.4% rose 1.1ppts from 2QFY17.

QoQ performance leapt encouragingly

On qoq basis, revenue increased by 15% to RM2,439m while EBITDA was at RM450m (+31% qoq). These were mainly due to the uncertainty on the aluminium market in the 2Q which prompts higher regional premium price. Additionally, the strengthening of US dollars also contributed in revenue growth. Although forex and derivatives loss/gain is a normal feature in Press Metal’s quarterly results, the 2Q18 loss of RM78m was higher than expected.

Steady outlook

Management guidance on its strategy to streamline into value added products has now almost reached 50% for FY18 target. This is to provide revenue insulation based on the pricing components. 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 second interim dividend of 1.5sen was declared, similar to 2Q17. We estimate a total of 9.9sen dividend per share to be paid for the whole year. This translates to a dividend yield of 2.1%.

Maintain BUY call with TP of RM5.69

We maintained our earnings forecast pending our visit today to Press Metal plant. We believe the average price of aluminium is expected to maintain above USD2,000 per tonne despite recent weakness. Value added product sales from the acquisition of Leader Universal Aluminium has started to contribute to Press Metal’s profit. We maintain our BUY call with TP of RM5.69.

Source: BIMB Securities Research - 16 Aug 2018