• Press Metal’s (PMAH) 6M20 core net profit declined by 15% yoy to RM185.9m mainly due to lower revenue from weaker aluminium selling prices
• Results Were However Within Market But Above Our Expectations
• In view of the stronger-than-expected results, we tweaked our 2020-22E EPS higher by 6-15% to reflect lower interest rate and tax rate as well as stronger LME price recovery and better utilisation at its Samalaju plant expansion.

Slightly Above Our Expectation

Press Metal’s 1H20 core net profit declined by 15% yoy to RM185.9m attributable to lower revenue contribution of RM3,561m (-17.3% yoy) from lower aluminium selling price and the production halt during the Movement Control Order (MCO) in 2Q20. The impact of the revenue decline was however dampened by lower operating expense incurred due to lower alumina and carbon anode raw material costs (-19.9%), possibly after the acquisition of JAA. In tandem, EBITDA margin improved by 2.7ppt yoy to 15.3% in 1H20. Overall, the results make up 48% of street and 51% of our full-year forecasts. The variance to our forecast was due to lower financing cost and a lower effective tax rate. Press Metal announced a DPS of 1 sen for 2Q20 (vs. 2Q19 DPS of 1.25 sen).

Core Net Profit Fell 11% Qoq in 2Q20

Sequentially, 2Q20 core net profit fell 11% to RM92.9m on the back of weaker aluminium selling prices during the quarter and as operations at PMAH’s extrusion and wire rod plants were halted for 2 months due to the MCO. Both plants have since resumed operations in stages since mid-May. Consequent to the weaker selling prices, EBITDA margin was slightly lower by 0.1ppt qoq to 15.6%. Moving forward, we turn more positive on the recovery of aluminium prices and demand given signs of a recovery in global economic activities, higher cancelled warrants in August, suggesting more demand for physical aluminium and deliveries as well as US$ weakness which should provide some support to LME prices. This note marks a transfer in analyst coverage.

Maintain HOLD With Higher TP of RM5.42

We raise our 2020-22E EPS higher by 6-15% to reflect lower interest rate, tax rate as well as a higher ASP assumption on the back of a faster recovery in LME prices and higher utilisation assumption at the new Samalaju Phase 3 plant. Maintain HOLD but with a higher target price of RM5.42 (from RM4.73) based on an unchanged 2021E PER of 34x (in line with its 3-year mean PER).

Source: Affin Hwang Research - 19 Aug 2020