• LME aluminium price breaks the US$2,000/MT level for the first time since Sep-2018, while alumina price remains range-bound at US$273-275/MT.
• Earnings outlook remains bright with 2-year core EPS CAGR of 66% in 2021-22E, driven by the completion of its plant expansion (+42% capacity).
• We reiterate our BUY call on Press Metal with a 12-month TP of RM9.66, based on a 2021E target PER of 40x.

We are positive on Press Metal’s earnings outlook

We raised the target price for Press Metal to RM9.66 in our recent Malaysia Strategy Outlook 2021 as we expect it to record higher earnings in 2021-2022E. This is in view of the rising aluminium price trend which coincides with the commissioning of its Samalaju Phase 3 smelting plant that is slated for January 2021, increasing its smelting capacity by 42% to 1,080k MT. Its profit margins are also set to improve as the alumina cost has lagged the increase in aluminium price, currently trading at an average of 14% of the aluminium spot price, compared to 16-17% typically. The expected commissioning of its 25%-owned associate PT Bintan’s alumina plant in Indonesia in 1Q21 should also improve margins from distribution cost savings.

Aluminium price on a rising trajectory due to rising demand

The aluminium price broke the US$2,000/MT level at the end of November, for the first time since Sep-2018.The November average price of US$1,931/MT is close to its 10-year average price of US$1,922/MT. The recovery can be attributed to the rising demand for aluminium as global economies are recovering and the market expects a manufacturing revival in 2021, supported by government stimulus programmes and positive development on Covid-19 vaccines. Our current earnings forecasts assume an average aluminium price of US$1,950/MT in 2021E and US$2,000/MT in 2022E. Furthermore, Press Metal is seeing better demand for valueadded products (VAPs), which command better margins due to its premium prices compared to ingots.

Maintain BUY with an unchanged target price of RM9.66

We maintain our BUY rating and target price of RM9.66 on Press Metal, based on a target 2021E PER of 40x (+1SD level above mean 12-month forward PER). We continue to like Press Metal for its strong earnings growth outlook and scarcity premium as it remains the only aluminium smelter to be listed in Malaysia as well as being the largest aluminium smelter in Southeast Asia.

Source: Affin Hwang Research - 14 Dec 2020