• Keep BUY, new MYR6 TP from MYR6.18, 15% upside. FY22 full-year earnings missed our and Street’s expectations on normalised ASPs and elevated raw material prices – this was partially offset by higher production volumes. We trim 2023F-2024F earnings by 11% and 8% to account for normalised aluminium prices and lower premiums, which could potentially be offset by easing carbon anode and alumina prices. We impute a 9% ESG premium based on our in-house ESG methodology.

• Ramped up volumes the saving grace. 4Q22 core profit shrunk by 16% QoQ to MYR266m, bringing full-year figures to MYR1,412.1m, accounting for 96% and 94% of our and Street’s full-year estimates. The weaker-than- expected quarterly net profit came amid softer aluminium prices realised in 4Q22 (averaging at USD2,336/tonne vs 3Q22’s USD2,356/tonne), a higher FX loss, and elevated carbon anode prices. Despite easing aluminium prices, both FY22’s revenue and core earnings grew 43% and 41% YoY thanks to higher production volumes from the full commissioning of Samalaju Phase 3.

• Supply-demand dynamics. Across the globe, aluminium production has slowed down – especially on the Western Europe side (-16.% YoY as of Dec 2022) – given that reliable power sources for smelters remain unsolved amid growing pressure on shifting away from coal-powered aluminium producers. The game is on hand in China as of now, given its status as the world’s largest aluminium consumer (c.60%).

• Outlook. Aluminium prices YTD have eased and remained at an average of USD2,349/tonne. Raw materials-wise, the average pre-baked carbon anode prices realised in 4Q22 were at their near peak of CNY7,855/tonne, but we are seeing some relief in early 2023 to CNY6,264.8/tonne, which will be reflected in the coming quarters. On the flip side, alumina prices have eased to an average of USD318/tonne during the same quarter. Moving forward, Press Metal will continue to strategise itself via its hedging policy: (2023) 35-40% at the range of USD2,400-2,500, (2024) 30% at USD2,600, and (2025) 15% at USD2,700 and above.

• Earnings revision. We trim 2023F-2024F earnings by 11% and 8% to account for normalised aluminium prices and lower premiums, which are potentially offset by easing carbon anode and alumina prices. We keep our 2023 aluminium price forecast unchanged at USD2,600.

• Valuation. Our new DCF-derived MYR6 TP translates to 27x 2023F P/E, in line with the historical mean but 45% above the global peer average of 14.2x. Nevertheless, we believe PMAH deserves a premium valuation after factoring in its favourable cost structure, as well as the scarcity of hydro-powered smelters worldwide that have a solid ESG profile. We impute a 9% ESG premium based on our in-house ESG methodology.

Source: RHB Research - 27 Feb 2023