• Overview. 2Q19 core profit fell 11% qoq and 36% yoy on weaker aluminium prices and higher alumina costs.

• Key highlights. Despite higher sales mix of value-added products in 2019, revenue weakened to reflect the metal’s easing price amidst inherent macro risks. Alumina prices stabilised for most of 1H19 and started to normalise in late May 2019 onwards.

• Against estimates: below. 1H19 core profit fell 30% and trailed ours and consensus estimates at 37%/34%. The shortfall was largely due to higher-than-expected input costs due to alumina prices.

• Outlook. Alumina prices eased in late 1H19 after Brazil’s federal court reinstated Alunorte’s output in May 2019 (embargo capped at 50%). Alumina prices which peaked at US$680/MT in Sep 2018 have now eased to c.US$300/MT in Aug 2019. This should provide some respite in PMetal’s 2H19 earnings. Still, Aluminium prices have dipped to below US$1,800/MT in Aug 2019 amidst the US-Sino trade war and easing global growth. Our estimates are optimistic.

• Our call. We believe the recent power purchase agreement (PPA) with SESCO further emboldens PMetal’s long term prospects albeit near term macro risks remain. Maintain HOLD with an RM4.20 TP. We have yet to incorporate the SESCO development in our forecast pending a relook at our assumptions.

Source: BIMB Securities Research - 21 Aug 2019