• Overall, FY18 core profit lagged our forecasts at 89% but was inline with consensus at 104%.

• Its core profit increased by 12.2% yoy to RM685m due to higher contribution by value added products and lower operating costs.

• A fourth interim DPS of 1.5 sen was declared which brings total DPS declared to 6.5sen (2017: 6sen)

• No adjustment was made to our earnings as we are currently reviewing both our forecast and target price.

Profit boosted by value added product

Overall, 2018 core net profit fell short of our estimates, coming in at 89% but was inline with consensus at 104%. This is after stripping out unusual items worth RM55m. The earnings growth was mainly due to higher contributions from value added products as well as favourable metal prices on premium pricing components. At EBITDA level, earnings grew 8% although EBITDA margin narrowed amidst higher input costs in alumina prices during the year.

QoQ performance leapt due to lower tax rate

On qoq basis, earnings increased by 10% to RM158m yet EBITDA was down at RM339m (-7% qoq). Combination of lower sales and higher input costs due to the spike in alumina prices narrowed EBITDA and PBT margins. However, lower tax rate for the quarter lead to earnings growth for the quarter.

Neutral outlook

Management guided on its strategy to streamline into value added products by raising output to hit 60% of revenue in 2019 target (2017: 30%). This should provide better revenue insulation. However, we note that there is uncertainty on the global aluminium outlook, in addition to weakening USD which may dilute earnings.

Dividend declared

A fourth interim dividend of 1.5sen was declared, similar to 4Q17. A total of 6.5sen declared for 2018 slightly higher than 6sen for 2017. This translates to a dividend yield of 1.6% and 40% payout ratio.

Maintain forecast pending review

Both our target price and earnings are under review pending management briefing for the quarter. We believe the average price of aluminium is expected to maintain above USD1,800 per tonne, lower than our initial ASP forecast.

Source: BIMB Securities Research - 27 Feb 2019