Press Metal registered a record high quarterly profits of RM 285.8m (+1% QoQ, +74% YoY) in 4Q21, bringing FY21 core profit to RM1,030.4m (+115% YoY). We deem the results to be marginally below our expectations (93%) but within consensus (95%). We believe that the best has yet to come for PMETAL and we expect profits to more than double yet again in FY22. We highlight that aluminium spot prices have breached the USD3,300/MT level. Maintain BUY with a higher TP of RM7.71 (20x P/E on FY23F EPS).

Below ours but within consensus. PMETAL reported a record high core profit of RM285.8m (+1% QoQ, +74% YoY) in 4Q21, bringing FY21 core profit to RM1,030.4m (+115% YoY). We deem the results to be marginally below our expectations (93%) but within consensus (95%). Key variance against our forecasts was lower-thanexpected sales tonnage, which we believe stems from the planned maintenance in the group’s Phase 1 and Phase 2 Samalaju smelting plant. A fourth interim dividend of 1 sen/share was declared (ex-date: 14 March 2022; payment date: 31 March 2022). DPS for FY21 totalled to 3.75 sen/share.

QoQ. Core profit was up by 1%, driven by higher LME aluminium spot prices, averaging at USD2,760/tonne in 4Q21 (vs. the average of US$2,652/tonne in 3Q21). However, we believe that it was mitigated by lower-than-expected sales tonnage in 4Q21 due to the ongoing planned maintenance in its Phase 1 and Phase 2 Samalaju smelting plant.

YoY. Core profit was up by 74% YoY, driven by: (i) higher LME spot prices, averaging at US$2,760/tonne in 4Q21 as compared to an average of US$1,931/tonne in 4Q20; and (ii) increased sales tonnage in 4Q21 from the ramp up of Phase 3 Samalaju expansion project.

YTD. Core profit more than doubled to RM1,030.4m, due to similar reasons mentioned in the YoY paragraph.

Outlook. We believe that the best has yet to come for PMETAL. We expect profits to more than double again in FY22, on the back of: (i) soaring aluminium spot prices; (ii) increased aluminium sales tonnage YoY, boosted by the full commissioning of the group’s Phase 3 Samalaju expansion project; and (iii) additional earnings boost from its 25%-owned Phase 1 PT Bintan alumina refinery business. We highlight that aluminium spot prices has soared above the USD3,300/tonne level. According to the latest OPEC+ MOMR report, the geopolitical developments have also put upward pressure on aluminium prices since Russia is one of the world’s biggest producers. Additionally, the recent Indonesian export ban on coal added upward pressure to aluminium prices as coal is the main energy source used to power aluminium production plants in China.

Forecast. We cut our FY22-23F net profit forecasts by 5% and 6% respectively to account for higher tax rate assumption from the additional Sarawak Sales Tax.

Maintain BUY, TP of RM7.71. We maintain our BUY recommendation on PMETAL with a higher TP of RM7.71/share (from RM7.25 previously) as we roll over our base year to FY23F but peg PMETAL to a lower P/E multiple of 20x (from 25x), which is at a slight premium to both its 7-year historical mean P/E and to the 10x average forward P/E of its global peers. However, we believe that valuations are justified due to: (i) its favourable cost structure as bulk of its energy costs are locked in via 15-25 year power purchase agreement (PPA) with Sarawak Energy Bhd; (ii) the scarcity premium of a growing large-cap, investible aluminium proxy in Malaysia; and (iii) its low carbon footprint as its smelters are hydro powered, boosting its ESG profile.

Source: Hong Leong Investment Bank Research - 28 Feb 2022