PMETAL’s FY22 results met expectations. FY22 net profit surged 42% driven largely by a strong ASP and the first full-year contribution from its new P3 plant. Aluminium prices are likely to stay firm given China’s reopening and the decommissioning of coal-fired smelters. We maintain our FY23F earnings, TP of RM6.30 and OUTPERFORM call.

FY22 core net profit of RM1.43b met expectations. A 4th interim NDPS of 1.75 sen (ex-date: 10 Mar; payment date: 31 Mar) brings FY22 total NDPS to 6.75 sen (FY21: 3.75 sen) which is a tad lower than our projection of 7.36 sen.

YoY. FY22 core profit jumped 42% on the back of a 43% surge in revenue driven by: (i) a higher average ASP (taking our cue from a 10% increase in the average aluminium spot price traded on London Metal Exchange (LME) to USD2,702/MT from USD2,463/MT a year ago, (ii) a stronger USD vs. MYR, (iii) the first full-year contribution from the new P3 plant (commissioned back in Oct 2021), and (iv) the doubling in associate income driven by contribution from 25%-owned alumina miner PT Bintan in Indonesia.

QoQ. 4QFY22 core net profit declined 18% despite a 2% rise in revenue which we believe was due to lower ASP realised. We notice that during the same period, the average aluminium spot price traded on LME only eased by 1% to USD2,335/MT from USD2,354/MT. We believe the discrepancy could be explained by PMETAL selling forward at prices different from the spot prices.

We maintain our FY23F net profit (average aluminium price assumption of USD2,550/MT) and introduce our FY24F numbers (at average aluminium price assumption of USD2,600/MT). Our dividend forecasts are based on an unchanged 40% payout ratio.

We maintain our DCF-derived TP of RM6.30 (WACC: 8.6%; TG: 5%) that carries a 5% premium by virtue of its 4-star ESG rating as appraised by us (see Page 4).

We continue to like PMETAL for its: (i) structural cost advantage over international peers given its access to low-cost hydro-power secured under four long-term PPA contracts ending between 2023 and 2040, (ii) strongly secured alumina supply with stakes in two alumina miners, i.e., Japan Alumina Associate (40%) and PT Bintan (25%) which supply 80% of its requirements, and (iii) green investment appeal as a clean energy source producer. Maintain OUTPERFORM.

Risk to our call includes: (i) a global recession resulting in a sharp fall in the demand for aluminium, hurting prices, (ii) escalation in the cost of key inputs such as alumina and carbon anode, and (iii) major plant disruptions or plant closure.

Source: Kenanga Research - 27 Feb 2023