• Press Metal’s (PMAH) 3Q20 core net profit increased by 35% yoy to RM125.6m mainly due to higher aluminium selling prices 
• Results were within market but above our expectations – making up 77% of street and 81% of our full-year forecasts.
• In view of the higher aluminium prices, we raise our 2020-22 aluminium price assumption to US$1,710/1,910/1,980 effectively lifting our earnings by 8%/27%/20% respectively. Reiterate BUY with a higher target price of RM7.53.

9M20: Above our expectation

Press Metal’s 9M20 headline net profit decreased 7.3% yoy to RM314.6m attributable to weak 2Q20 earnings due to Movement Control Order (MCO) and lower aluminium prices. Revenue was lower by 15.6% to RM5,422.6m while EBITDA margin improved by 2.7ppt to 16% on lower operating expense incurred due to lower alumina and carbon anode raw material costs. Excluding one-offs, core net profit came in at RM316m, a 9.6% decline yoy. Core earnings made up 77% of street and 81% of our full-year forecasts. The variance to our forecast was due to higher than expected aluminium price. In tandem with the lower earnings, 9M20 DPS was lower at 3 sen (vs 9M19 DPS of 3.75 sen).

Core net profit increased 35.1% qoq in 3Q20

Sequentially, 3Q20 core net profit increased 35.1% to RM125.6m due to higher aluminium selling price and higher value added products (“VAP”) sold during the quarter. In tandem, EBITDA margin was also higher by 1.3ppt qoq to 16.9%.

Reiterate BUY with a higher TP of RM7.53

Moving forward, we expect stronger performance from PMETAL stemming from rising aluminium prices and higher aluminium demand which should coincide with commissioning of its Phase 3 samalaju plant in Jan-21. We are also expecting better margins from transport cost savings from commissioning of Phase 1 PT Bintan in 1Q2021 as well as lower alumina and carbon anode cost. As such, we raise our FY20-22E EPS by 8-27% to reflect a higher ASP assumption for 2020-2022E of US$1,710/1,910/1,980 (from US$1,690/1,820/US$1,900) on the back of a faster recovery in LME prices. Reiterate BUY with a higher target price of RM7.53 (from RM5.92) based on an unchanged 2021E PER of 34x.

Key risks

Key downside risks to our rating include: i) a sharp decline in aluminium prices; ii) higher alumina and carbon prices; ii) slower recovery in global aluminium demand; iv) a global economic slowdown; v) implementation of a sales tax on aluminium products in Sarawak; and vi) RM appreciation.

Source: Affin Hwang Research - 27 Nov 2020