Press Metal reported 2Q21 core profit of RM247m (+12.2% QoQ, +175% YoY) and 1H21 core profit of RM468m (+143% YoY). The results were within ours but below consensus’ expectations, constituting 43% and 37% of respective forecasts. We expect Press Metal to record sequential improvements in 3Q21 and 4Q21 as its 320,000mtpa of additional capacity from Samalaju phase 3 is expected to be fully commissioned in Sept 2021 along with higher expected aluminium prices. Maintain BUY at unchanged TP of RM7.10 based on 40x (unchanged) FY22 EPS of 17.8sen.

Within expectations. Press Metal reported 2Q21 core profit of RM247m (+12.2% QoQ, +175% YoY) and 1H21 core profit of RM468m (+143% YoY), coming in within ours but below consensus’ expectations, constituting 43% and 37% of full year forecasts.1H21 core profit was derived after adjusting for EI’s amounting to RM6.7m, mainly comprising of unrealised forex losses amounting to RM5.8m.

Dividend. Declared Interim Dividend of 1.0 Sen/share (SPLY: 1.0 Sen/share) Going Ex on 10 Sep 2021.

QoQ. Core profit was up 12.2% due to higher QoQ realised aluminium prices and an additional c.10,000 tpa of aluminium produced from its Samalaju P3 smelter.

YoY. Core profit was up 175% due to higher realised aluminium prices and additional c.20,000 tpa of aluminium produced from P3.

YTD. Core Profit Improved by 143% YoY Due to the Same Reasons Mentioned Above.

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 Sept 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 50% of its aluminium volumes at an aluminium price of USD2,200/mt in FY22.

Forecast. No Changes.

Maintain BUY at unchanged TP of RM7.10. Our TP is based on FY22 EPS of 17.8sen pegged to an unchanged PE multiple of 40x, 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 - 25 Aug 2021