Period

1Q15

Actual vs. Expectations

Press Metal (PMETAL)’s 1Q15 Core Net Profit (CNP*) of RM140.2m makes up 41.9% and 43.3% of our and consensus’ full-year estimates, respectively. We derived the CNP after excluding an one-off item namely unrealised forex losses of RM97.0m. However, we only consider the result as “broadly in line with our expectation” instead of ahead of expectations. This is because the reported net profit only accounted for 12.9% of our full-year earnings.

Strong core earnings were mainly attributable to better-thanexpected margins. We gather that it benefitted from the weaker MYR as a sizeable portion of cost is MYR denominated while revenue is quoted in USD. Hence, PMETAL gained when USD appreciated against MYR from average of RM3.37/USD in 4Q14 to RM3.62/USD in 1Q15 (+7.4%).

Dividends

Within expectation. The company announced a first interim dividend of 3.0 sen. Our forecasts for the whole FY is 13.0 sen.

Key Results Highlights

QoQ, While 1Q15 revenue slightly declined by 6.9%, which we believe was due to the fall in aluminium prices (-9.4%), CNP rose by 10.8% to RM140.2m thanks to margin expansion. We understand that the strengthening USD in 1Q15 benefited PMETAL given that a sizeable portion of their cost is denominated in MYR while their revenue is quoted in USD.

YoY, 1Q15 revenue rose by 17.7% due to: (i) plant recovery in Mukah smelting plant, and (ii) higher aluminium prices (+5.3%). Due to major improvement in revenue and cost (no more startup costs to resume the Mukah plant after being shut down), 1Q15 CNP increased fourfold to RM140.2m. To recap, in June 2013, there was temporary shutdown in Mukah smelting plant due to state wide power outage.

Outlook

Remain bright in the near-medium term as we expect earnings growth from the new capacity to start kicking-in from January 2016 onwards.

We also reaffirm our aluminium price assumption at USD1,900/MT, as we expect aluminium prices to stabilise in later part of 2H15 when demand is expected to recover, driven by growing usage of aluminium in the auto sector.

Change to Forecasts

Unchanged. We decided to maintain our forecasts for now as we expect USD to stabilise in coming quarters. Based on our in-house economists, USD/MYR would eventually come off to RM3.45/USD by end-2015.

Rating

Maintain OUTPERFORM

Valuation

We like PMETAL for its solid earnings growth potential and globally competitive margins of 17.7% vs industry peers’ 12.4%.

Maintain our TP at RM5.41, based on unchanged ascribed PER of 15.0x on FY16E FD core EPS of 36.1 sen. Our ascribed PER is in line with FBM Mid 70 Index Fwd FY15E PER of 14.9x. We believe our valuation benchmark is justified by PMETAL’s strong earnings growth prospects at 21.2%- 20.7% in FY15-16E, way higher than that of FBM70’s earnings growth of 11.4%-4.4%, respectively. 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

Slower-than-expected aluminium demand

Higher-than-expected raw material prices

Forex fluctuation risks

Source: Kenanga Research - 7 May 2015