• 3QFY18 core profit fell 41% qoq and 6% yoy due to combination of higher input costs as well as higher effective tax rate.

• Overall, 9MFY18 core profit trailed ours and consensus forecast at 69% and 72% respectively.

• A third interim DPS of 2.0 sen was declared which brings total DPS declared to 5sen.

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

Higher input costs

3Q18 core profit fell 6% yoy despite improved sales. The decline was largely attributed to higher effective tax rate and MI charge off. At the EBITDA level, earnings grew 6% albeit EBITDA margin narrowed amidst higher input costs possible on the back of the spike in alumina prices during the quarter.

Hiccups in QoQ performance

On qoq basis, earnings fell 41% yoy to RM143m due to combination of weaker sales and higher input cost which were exacerbated by higher effective tax rate.

Core 9MFY18 earnings trailed

Overall, 9M18 core net profit trailed ours and consensus estimate at 69% and 72% of FY18E. This is after stripping out unusual items amounting RM54m.

Steady outlook

Management’s guidance on its strategy to streamline into value added products has now almost reached its 50% target for FY18 and is on track to increase this to 60% of revenue in FY19. While we note that there is uncertainty on the global aluminium outlook, weakening CNY and strengthening USD thus far will benefit Press Metal.

Dividend declared

A third interim dividend of 2sen was declared, 0.5 sen higher than 3Q17 and brings total DPS declared to 5sen. 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% at current prices.

Maintain BUY call with TP of RM5.69

We maintained our earnings forecast despite the hiccups faced this quarter. We believe value-added product sales from the acquisition of Leader Universal Aluminium will continue to contribute to Press Metal’s profit. We maintain our BUY call with TP of RM5.69.

Source: BIMB Securities Research - 23 Nov 2018