• We are reassured that Press Metal’s (PMETAL) earnings outlook remains bright with a 3-year core EPS CAGR of 32% in 2021-23E, driven by the completion of its plant expansion (+42% capacity) and healthy demand
• LME aluminium price continued to trend upwards while alumina-aluminium price spread widened leading to margin improvement
• We reiterate our BUY call on Press Metal (PMETAL) with an unchanged 12- month target price (TP) of RM10.73 based on 2021E target PER of 40x

PMETAL’s Bright Earnings Outlook Remains Intact

We were reassured of PMETAL’s bright earnings outlook following its results briefing. Management is hopeful on a rising aluminium price trend as it believes that LME prices are likely to be supported by limited new incoming supply while promising demand is expected to outstrip supply in the short term. In addition, PMETAL is in a prime position to benefit from rising interest in decarbonisation efforts and green metal as its efforts to be recognised as a “Green Aluminium Producer” looks on track. PMETAL is poised to experience better margins moving forward as the price increase in alumina has lagged behind that of aluminium – alumina price as a percentage of aluminium price dropped to 14-15% compared to its 5-year average range of 16- 18%. PMETAL will also reap transport cost savings with the commissioning of its 25%-owned associate PT Bintan’s Phase 1 alumina plant.

Commissioning of Plants in 2021

PMETAL’s Phase 3 Samalaju smelter plant, which provides an additional 320k MT p.a. of aluminium production capacity (+42% capacity expansion), was commissioned in late December 2020. Currently, 1/3 of the plant is operational and PMETAL is positive that full capacity can be achieved by 2H21. Meanwhile, PT Bintan’s alumina refinery plant should begin commissioning and distribution in 2Q21.

Maintain BUY With An Unchanged Target Price of RM10.73

We maintain our BUY rating with an unchanged target price of RM10.73 based on a target 2021E PER of 40x (+1SD level above 2-year mean forward PER). We continue to like PMETAL 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 - 3 Mar 2021