PMETAL’s 9M16 CNP at RM273m was within expectations at 80% of our forecast. Dividend of 2.0 sen was announced for YTD DPS of 8.0 sen, in line with our forecast. No changes to our FY16-17E CNP of RM323- 461m and we maintain our OUTPERFORM call based on Fwd. PER of 15.0x on FY17E EPS of 33.4 sen.

9M16 within expectations. 9M16 core net profit (CNP*) of RM273m was within expectations, making up 80% of our forecast. Note that we excluded consensus comparison given the lack of other research coverage. Our CNP calculation excludes unrealised forex gain of RM6.6m and insurance claims (ex-minority share) of RM76.0m. An interim dividend of 2.0 sen was announced, for YTD DPS of 8.0 sen, which we deem in line with our FY16 forecast of 14.0 sen as we expect a higher DPS in 4Q16 for a pay-out ratio of 45%.

Continued improvement at new plant. Ytd-YoY, CNP improved 15% to RM273m as manufacturing revenue jumped 54% driven by the new production at the Phase 3 expansion of its Samalaju plant. Manufacturing EBIT rose 159% to RM600m as margins rose to 13% (from 8%) on improved economies of scale. However, interest expense partly offset the gains, rising 43% to RM113m. QoQ, CNP improved 8% on higher utilization as manufacturing revenue rose 10% to RM1.71b. EBIT declined 14% on the lack on insurance claims during the quarter.

Positive aluminium outlook. We remain long-term positive on PMETAL as we expect aluminium prices to continue its uptrend in FY17 to average USD1,700/MT (+6% YoY) driven by supply cuts and increasing automotive usage. Indeed, YTD aluminium prices have already improved 17% to hit USD1,719/MT as of 28-Oct. Furthermore, PMETAL’s move upstream to secure its raw material supply (pre-baked carbon anodes) should bode well for cost stability in the long-run.

FY16-17E CNP maintained at RM343-461m as results are within our expectation.

Maintain OUTPERFORM on PMETAL with unchanged TP of RM5.00 (ex-bonus/share split TP: RM1.79) based on FY17E Fully Diluted EPS of 33.4 sen and unchanged Fwd. PER of 15.0x. Our Fwd. PER of 15.0x is based on ex-capacity PER-to-aluminum price ratio of 0.50x (at an aluminium price range of USD1,600-1,800/MT). Based on our FY17E aluminium price forecast of USD1,700/MT and 73% capacity growth from Samalaju Phase 3, we derive a Fwd. PER of 15.0x . We continue to be positive on PMETAL given the uptrend in aluminium price outlook and improving operational efficiency upon the full commissioning of its new Samalaju plant.

Source: Kenanga Research - 31 Oct 2016