Period  4Q14/FY14

Actual vs. Expectations  PMETAL’s FY14 Core Net Profit (CNP*) of RM313.5m came in above expectations, making up 133.0% and 121.0% of ours and consensus’ full-year estimates. We derived the CNP after we exclude one-off items namely (i) unrealised forex losses of RM80.9m and (ii) loss on disposal of quoted/unquoted investment or properties of RM3.5m.

 The positive variance is due to (i) stronger-than-expected USD against MYR and (ii) higher-than-expected output from both Mukah and Bintulu smelting plants. We gather that USD strengthened against MYR from average of RM3.19/USD in 3Q14 to RM3.37/USD in 4Q14 (+5.4%).

Dividends  Above expectation. The company announced a fourth interim tax-exempt dividend of 3.0 sen. YTD, PMETAL has cumulatively declared 11.0 sen DPS, higher than our forecasts of 10.0 sen.

Key Results Highlights  QoQ, despite aluminium prices dropped by 1.0%, 4Q14 revenue rose by 10.3% to RM1.1b. We believe the stronger topline performance was mainly due to stronger USD against MYR (+5.0%). Note that PMETAL’s export segment which in USD makes up 41.0% of its total revenue. As a result of higher revenue, 4Q14 CNP rose by 20.2%.

 4Q14 revenue rose by 30.2% YTD and 40.8% YoY mainly driven by (i) plant recovery in Mukah smelting plant and (ii) higher production in Bintulu smelting plant. As a result, FY14 CNP increased fourfold to RM313.5m. To recap, in June 2013, there was temporary shutdown in Mukah smelting plant due to state wide power outage.

Outlook  Remain bright as we expect aluminium prices to slowly rebound in upcoming quarters in FY15 towards the 8-year historical average of USD2,200/MT driven by the growing usage of aluminium in the auto sector and narrowing available global supply as global consumption outstrips existing production levels.

Change to Forecasts  Post-adjustments on USD/MYR and aluminium price assumptions, we raised our FY15-16E CNP forecasts by 18.0% and 12.0% to RM381.1m and RM450.4m respectively. (Refer overleaf)

Rating Maintain OUTPERFORM Valuation  We continue to favour PMETAL due to its solid earnings growth potential and globally competitive margins at 16.7% vs industry peers of 6.5%.

 Post earnings adjustments; we raise our TP to RM5.18 from RM4.99. Our TP is based on unchanged ascribed PER of 14.0x on average FY15-16E fully diluted Core EPS of 37.0 sen (from 35.6 sen previously). Our ascribed PER is in line with FBM Mid 70 Index Fwd FY15E PER of 14.0x. We believe our valuation benchmark is justified by PMETAL’s strong earnings growth prospects at 21.5%- 18.2% in FY15E-FY16E way higher than that of FBM70’s earnings growth of 3.0-12.6%. Our fully diluted core EPS is after assuming full conversion of its RCLS.

Risks to Our Call  Lower-than-expected aluminium prices

 Interruption to power supply 

Source: Kenanga