Press Metal reported 4Q20 core profit of RM127.5m (+1.2% QoQ, -1.9% YoY) and FY20 core profit of RM446.2m (-5.6% YoY). The results were in-line with our and consensus’ expectations, constituting 99% and 100% of respective forecasts. FY21 is expected to be a stellar year for Press Metal as its 320,000mtpa of additional capacity from Samalaju phase 3 is expected to be commissioned in May 2021 along with higher expected aluminium prices. 1QTD21 LME aluminium prices are already 17.4% higher than average FY20 prices. Maintain BUY at TP of RM10.00 based on 40.3x FY22 EPS of 24.8sen.

Within expectations. Press Metal reported 4Q20 core profit of RM127.5m (+1.2% QoQ, -1.9% YoY) and FY20 core profit of RM446.2m (-5.6% YoY) coming in-line with expectations, constituting 99% and 100% of our/consensus full year forecasts. FY20 core profit was derived after adjusting for EI’s amounting to RM11m, mainly comprising of unrealised forex gain, write-off for PPE and receivables and premium paid on senior bond redemption.

Dividend. Declared interim dividend of 1.25 sen/share (SPLY: 1.25 sen/share) bringing FY20 dividend to 4.25 sen/share (SPLY: 5 sen/share).

QoQ. Core profit was up 1.2% due to marginally higher QoQ realised aluminium prices.

YoY. Core profit was down 1.9% despite higher YoY LME aluminium prices (+9.1%) as Press Metal’s realised aluminium prices in 4Q20 were c.5% lower than LME aluminium prices from its hedging policies in place.

YTD. Core profit was down 5.6% YoY due to lower LME aluminium prices (-4.9%), mitigated by lower raw average carbon anode and alumina prices.

Outlook. We expect Press Metal to record a c.69% earnings growth in FY21 due to higher aluminium prices and its additional capacity from Samalaju phase 3, which is slated for full commissioning in May 2021. We project Press Metal’s ASPs for aluminium to average at USD2,000/mt in FY21 and USD2,1000/mt in FY22, driven by China’s strong demand and the expected recovery in the global economy from vaccine rollouts. We believe that Press Metal would also have the room to increase its value-added capacity by another c.200,000 mtpa post-commissioning of its Samalaju phase 3. Going forward, we believe that Press Metal will lower its forward sales volumes due to a more positive aluminium price outlook. Recall that Press Metal typically hedges its aluminium sales volume by c.40%, 24 months forward. We believe that its forward sales volume will drop to c.20% in FY22. LME aluminium prices are already 17.4% higher than average FY20 prices.

Forecast. No Changes.

Maintain BUY, TP: RM10.00. Our TP is based on FY22 EPS of 24.8sen pegged to a PE multiple of 40.3x, which is +1SD above its 5-year mean P/E; we believe this is justified as Press Metal’s earnings trajectory is expected to be positive in the next 3 to 4 years.

Source: Hong Leong Investment Bank Research - 25 Feb 2021