FY21 core profit of RM1.04b came slightly below on RM50m Sarawak state sales tax posted in 4QFY21, but a record year nevertheless. Going forth, aluminium price will continue to remain elevated especially with the Russia- Ukraine conflict fuelling prices to above USD3,400/MT last Thursday. Coupled with P3 new capacity, FY22 will be another record year. We keep OP for its promising earnings prospects with a higher TP of RM8.63.

4QFY21 slightly below expectation. 4QFY21 core profit dipped <1% QoQ to RM284.8m, totalling FY21 core profit to RM1.04b, coming slightly below our forecast by 6% and consensus by 5%. This was due to an accrual for Sarawak State sales tax of RM50m for FY21 posted in 4QFY21. Meanwhile, it declared 4th interim NDPS of 1.0 sen (ex-date: 14 Mar; payment date: 31 Mar), bringing YTD FY21 NDPS to 3.75 sen vs. 2.125 sen (adjusted for 1:1 bonus) paid in FY20.

Cost remained elevated. Despite revenue rising 17%, 4QFY21 core profit slid slightly QoQ to RM284.8m from RM285.4m in 3QFY21 as operating costs continued to stay elevated especially logistic costs as well as raw material costs. Alumina and carbon anode spot prices in 4QFY21 rose further by 27% and 19%, respectively, over the quarter while LME aluminium spot price only grew by 4% to USD2,754/MT from USD2,646/MT. Meanwhile, P3 Plant was fully commissioned in Oct 2021 with production volume showing a slight improvement, offset by scheduled repair & maintenance at P1 and P2 limiting production volume.

Solid aluminium prices led earnings growth. YoY, 4QFY21/FY21 core profits jumped 103%/133% to RM284.8m/RM1.04b from last year, primarily attributed to rising selling prices coupled with higher production output. LME aluminium spot price leapt 44%/45% to USD2,754/MT / USD2,477/MT from USD1,917/MT / USD1,706/MT previously. On the other hand, associate income soared 362%/384% to RM51.2m/RM82.2m from RM140.4m/RM445.4m last year largely due to higher earnings from PMB Tech as well as maiden earnings from PT Bintan.

FY22 will be another record year. The Russia-Ukraine conflict has escalated aluminium price to above USD3,400/MT last Thursday and prices are expected to remain elevated in the near term. YTD average aluminium price rose further to USD3,119/MT. Meanwhile, PMETAL has sold c.60%/30% of its FY22/FY23 forward production volume at c.USD2,300-2,400/MT. As such, we raised FY22E aluminium price assumption to USD2,600/MT from USD2,400/MT with higher opex assumption as well (refer to page 3 for detailed table). This led to us upgrading FY22 earnings estimates by 24% while we introduce new FY23 forecasts with earnings to grow at 22%. Our FY22/FY23 NDPS are based on unchanged 40% earnings payout. On the other hand, our forecasts did not factor in the IRB’s RM106.1m additional assessment that was imposed on PM Bintulu on 25 Nov 2021.

OUTPERFORM maintained. With solid aluminium prices coupled with the full impact of P3 production volume starting from Oct 2021, PMETAL’s earnings prospect remains promising. Thus, we continue to rate the stock an OP with a higher TP of RM8.63, from RM6.96 previously, based on unchanged +0.5SD 5-year FY22E rolling mean of 33x PER.

Key risks to our recommendation are sharp falls in aluminium prices, an escalation of raw material prices as well as major plant disruptions/closure.

Source: Kenanga Research - 28 Feb 2022