Press Metal Aluminium Berhad (Press Metal) registered a core PATAMI of RM284.8mn which was up 7.1% QoQ but slid by 32.9% YoY. The result was substantially below our in-house and consensus full year earnings forecast, making up only 16.2% and 16.3% respectively. We believe low inventory level is likely to persist towards the end of 2023 owing to supply constraint from China and Europe regions amidst soft demand for aluminium arising from recession fears. Maintain a BUY call for Press Metal, with a lower TP of RM5.46.

• Below expectations. 1Q23 core PATAMI of RM284.8mn was below our in-house and street estimates, making up 16.2% and 16.3% no thanks to lower-than-expected metal prices as well as fewer contribution by associate companies.

• Dividend. The Group declared its first interim single tier dividend of 1.75sen per share for FY23, making up 23% from our full year FY23 dividend forecast.

• QoQ. Revenue tanked by 21.6% QoQ due to a cut back in smelting sales volume, lower extrusion products prices as well as shrinking contribution from its alumina associate, Japan Alumina Associates (Australia) Pty Ltd (JAA). PBT margin on the other hand escalated by 3.9ppts QoQ, thanks to lower raw material costs.

• YoY. On yearly basis, revenue and PBT declined 21.7% YoY and 35.5% YoY respectively, no thanks to lower metal prices as well as fewer contribution by associate companies, mainly PT Bintan. It was anticipated that the correction in aluminium price from its peak was a result of lower aluminium inventory level due to production cut following severe drought in China as well as energy crisis Russia metal ban in Europe. On the same note, prevailing global headwinds to continue to exert a negative impact on demand, resulting in a persistently weak market environment.

• Outlook. Going forward, we believe low inventory level is likely to persist towards the end of 2023 owing to supply constraint from China and Europe regions amidst soft demand for aluminium arising from recession fears. Nonetheless, despite current tight supply to persist with supply cut from China and Europe and potential ban on Russia’s production, could pose a threat on inventory level, and hence pushing aluminium price higher. Global demand for aluminium is expected to gradually increase, to be driven by the growing adoption of electric vehicles (EVs) and the increase use of aluminium in various types of vehicles. We pencil aluminium spot price assumption of USD2,580-USD2,600/tonne for FY23- FY25F.

• Forecast. We tweak our FY23-FY25F earnings forecast by 18.7-25.6% to account for lower aluminium prices assumption.

• Maintain a BUY, TP: RM5.46. Maintain a BUY call on the stock with a lower target price of RM5.46 (RM6.54 previously). Our valuation is based on average 5-year historical PER of 30x, pegged to FY24F EPS of 18.2sen (21.8sen previously).

Source: BIMB Securities Research - 31 May 2023