• Maintain BUY (TP:RM5.43). Press Metal’s 9MFY23 core PATAMI of RM910.4mn was above our in-house but below consensus estimates, making up 85.3% and 69.7% respectively. The higher-than-expected earnings was due to lower sales volume assumption. The Group has declared third interim single tier dividend of 1.75sen per share for FY23, bringing total dividend payout of 5.25sen as at 9MFY23. 3QFY23 revenue and PBT tanked 8.5% QoQ and 2.2% QoQ, no thanks to lower contribution from smelting division. We increase our FY23F earnings forecast by 15.2% to RM1.2bn to account for higher sales volume assumption but maintained FY24-25F earnings forecast. We foresee that short-term aluminium outlook is dimmed by lower demand due to high inflation on the back of persistent tight supply. Nonetheless, we are the view that long-term prospects are positive, driven by the increasing adoption of electric vehicles and greater use of aluminium in various vehicle types. Maintain a BUY call on the stock with unchanged TP of RM5.43. Our valuation is based on average 3-year PER of 33.1x, pegged to FY24F EPS of 16.4sen.

• Key Highlight. Press Metal reported an 82% QoQ surge in contributions from associates, primarily attributed to PT Bintan's increased sales volume and favourable costing. The current utilisation rate remains at an optimal level, consistent with the previous quarter. Additionally, the management is optimistic about expanding capacity, aiming for an annual capacity of 4mn metric tonnes, progressively moving forward.

• Earnings Revision. In view of higher-than-expected earnings, we increase our FY23 earnings forecast by 15.2% to RM1.2bn to account for higher sales volume assumptions but maintained FY24-25F earnings forecast.

• Outlook. As we look ahead, we anticipate a short-term dampening of the aluminium outlook due to subdued demand caused by high inflationary pressure. On the supply side, despite the resumption of production from Chinese aluminium players, the current tight supply is expected to persist. Factors such as supply cuts from Europe and the potential ban on Russia's production pose threats to inventory levels, potentially pushing aluminium prices higher. Nevertheless, global demand for aluminium is expected to gradually increase, driven by the growing adoption of electric vehicles (EVs) and the increased use of aluminium across various industries. We project an aluminium spot price assumption of USD2,500-USD2,600 per tonne for FY23-FY25.

Source: BIMB Securities Research - 29 Nov 2023