Press Metal reported net profit of RM630m (+6.2% yoy) in 2018, which was within market and our expectations. Its revenue grew by 12% yoy to RM9.2bn on the back of higher aluminium selling prices and better product mix. After excluding one-off items, its 2018 core net profit of RM596m was 7.7% yoy lower mainly due to higher tax expenses. We trim our 2019-20E earnings by 2-4% and introduce our 2021E earnings. Maintain HOLD with a lower TP of RM4.48.

Within Expectations

Press Metal reported 2018 revenue of RM9.2bn, a 12% yoy growth mainly driven by higher aluminium selling prices and better product mix. Accordingly, its 2018 headline net profit was up by 6% yoy to RM630m, which was within market and our expectations. After excluding one-off items such as insurance claims of RM60m and foreign exchange gain of RM114m, core net profit was down by 8% yoy partly due to higher tax expense of RM90m (+44% yoy) in 2018. EBITDA margin of 15.4% in 2018 was lower compared to 17.7% in 2017, mainly attributable to higher alumina and carbon costs. We expect EBITDA margin to improve in 2019 as alumina and carbon prices moderated; coupled with higher value-added product contribution, which command better margin. Notably, Press Metal announced a final DPS of 1.5 sen in 4Q18, bringing 2018 full-year DPS of 6.5 sen (vs. 2017 DPS of 6.0 sen).

Net Profit Was Down 4% Qoq

Sequentially, net profit was down by 4% qoq to RM156m on the back of lower revenue of RM2.2bn (-5% qoq) due to lower aluminium selling prices. We expect global aluminium prices to remain weak in 1Q19 given the uncertainties from US-China trade dispute and weak sentiment arising from expectations of a global economic slowdown. However, the weakness in aluminium prices will be partly mitigated as we understand that the group has locked in close to 45% of its aluminium production at US$2,000-2,100/MT. We expect 2019E earnings to be supported by higher value-added product mix and maiden contribution from its 50% stake in Japan Aluminium Association (JAA).

Maintain HOLD With Lower TP of RM4.48

We trim our 2019-20E earnings by 2-4% to factor in softer global aluminium prices and introduce our 2021E earnings. We maintain our HOLD call with lower TP of RM4.48 based on 2019E PER of 27x. We like the group for its strong management team and its business strategy to focus on improving profit margins.

Source: Affin Hwang Research - 27 Feb 2019