Press Metal Aluminium Berhad (Press Metal) posted a core PATAMI of RM307.3mn during 2QFY23 which rose 7.9% QoQ but slid by 26.2% YoY. The result was substantially below our in-house and consensus full year earnings forecast, making up only 43.8% and 39.3% respectively. We view that aluminium prices could be weighed by decreased demand due to economic recession concerns. However, it may be negated by the ongoing tight supply that include European supply cuts and potential production bans in Russia. Maintain a BUY call for Press Metal, with a lower TP of RM5.43.

• Below expectations. 1HFY23 core PATAMI of RM592.1mn was below our inhouse and consensus estimates, making up only 43.8% and 39.3%. The lowerthan-expected deviation was dented by lower aluminium price albeit muted contribution from associate companies.

• Dividend. The Group has declared second interim single tier dividend of 1.75sen per share for FY23, bringing total dividend payout of 3.5sen as at 1HFY23.

• QoQ. Revenue and PBT soared by 22.4% QoQ and 5% QoQ respectively, given higher sales volume and increased revenue contribution from extrusion and upstream segments. The increased revenue in the extrusion segment resulted from higher-value-product profiles and sales recognition despite lower volumes.

• YoY. Revenue and PBT tanked 6.2% YoY and 27.2% YoY respectively, no thanks to lower aluminium price as a result of weak demand amidst prevailing global headwinds.

• YTD. As for 1HFY23, both revenue and PBT slumped 13.9% YoY and 31.5% YoY respectively. The uninspiring results was resulted from lower aluminium prices as well as associates’ contribution.

• Outlook. Going forward, we view that aluminium price outlook to be dampened by subdued demand for aluminium prompted by concerns on economic recession. On the supply side, production from China aluminium players has resumed. However, current tight supply is expected to persist with supply cut from Europe and potential ban on Russia’s production posing a threat on inventory level. 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 USD2,500-USD2,600/tonne for FY23-FY25F.

• Forecast. We tweak our FY23-FY25F earnings forecast lower by 3.8-21.1% to RM1.1-1.5bn to account for lower aluminium price assumption.

• Maintain a BUY, TP: RM5.43. Maintain a BUY call on the stock with a lower TP of RM5.43 (RM5.46 previously) as we roll over our valuation to FY24. Our valuation is now based on average 3-year PER of 33.1x, pegged to FY24F EPS of 16.4sen.

Source: BIMB Securities Research - 30 Aug 2023