Press Metal reported 1Q21 core profit of RM220.5m (+72.9% QoQ, +114.8% YoY). The results were above ours but within consensus’ expectations, constituting 24% and 18% of respective forecasts due to better than expected aluminium prices. 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 July 2021 along with higher expected aluminium prices. Maintain BUY at a higher TP of RM7.10 (from RM6.00) based on 40.3x (unchanged) FY22 EPS of 17.6sen as we raise our aluminium ASP price forecast.

Above expectations. Press Metal reported 1Q21 core profit of RM220.5m (+72.9% QoQ, +114.8% YoY) coming in above ours but within consensus’ expectations, constituting 24% and 18% of full year forecasts due to better than expected aluminium prices. 1Q21 core profit was derived after adjusting for EI’s amounting to RM14.8m, mainly comprising of unrealised forex losses amounting to RM14.4m.

Dividend. Declared interim dividend of 0.75 sen/share (SPLY: 0.5 sen/share) going ex on 16 June 2021.

QoQ. Core profit was up 72.9% due to higher QoQ realised aluminium prices and an additional 10,000 tpa of aluminium produced from its Samalaju P3 smelter.

YoY. Core profit was up 114.8% for the same reasons mentioned above.

ESG. Press Metal has hired an auditor from Norway (DNV) to audit and certify its aluminium products and introduce its “Green Aluminium” label which will meet the global standards of having less than 4.0 mt of CO2 per mt of aluminium produced. The audit and certification report was completed in March 2021 and Press Metal is expected to finalise the details of its launch and marketing soon. Press Metal has also joined Aluminium Stewardship Initiative (ASI), a global organisation which sets ESG standards for the aluminium industry in 2020 and is working towards obtaining ASI performance standard certification for its Samalaju plants. It is also confident that it can be included into the FTSE4Good index very soon.

Outlook. We expect the strong aluminium price trend to continue along with additional production from Samalaju phase 3, which is slated for full commissioning in July 2021. We project Press Metal’s ASPs for aluminium to average at USD2,100/mt in FY21 and USD2,2000/mt in FY22, driven by (i) China’s strong demand and the expected recovery in the global economy from vaccine rollouts (ii) decarbonisation initiatives globally and the (iii) tight supply dynamics of aluminium from the stringent restrictions imposed on coal-fired smelters. We believe that Press Metal would also have the room to increase its value-added capacity by another c.200,000 mtpa post full commissioning of its Samalaju phase 3 smelting plant. Going forward, we believe that Press Metal will lower its forward sales volumes due to a more positive aluminium price outlook. Press Metal has currently hedged 50% of its aluminium volumes at USD2,050/mt in FY21 and 40% of its aluminium volumes at an aluminium price of USD2,150/mt in FY22.

Forecast. We increase our earnings forecast for FY21/22f by 21/18% to factor in our higher aluminium price assumptions of USD2,100/mt (from USD2,000/mt) and USD2,200/mt (from USD2,100/mt) for FY21 and FY22.

Maintain BUY at higher TP of RM7.10 (from RM6.00). Our TP is based on FY22 EPS of 17.6sen pegged to an unchanged PE multiple of 40.3x, which is +1SD above its 5- year mean P/E; we believe this is justifiable as Press Metal’s earnings trajectory is expected to be positive in the next 3 to 4 years.

Source: Hong Leong Investment Bank Research - 28 May 2021