• Still BUY, new MYR5.38 TP from MYR5.71, 14% upside and 1.3% yield. 1Q23 core profit of MYR266m was below our and Street’s forecasts on softening metal sales prices and lower associates’ contributions. While our FY23F earnings are trimmed by 4% to reflect the softening prices, we retain our call given the still low LME warehouse aluminium inventory, scarcity of low carbon-producing aluminium smelters in ASEAN, and global demand shift towards the Asian smelters amid production disruptions in Europe.

• A slight miss. Press Metal recorded a 1Q23 core profit of MYR266m (+5% QoQ, -33.9% YoY) or 17% and 16% of our and Street’s full-year estimates. The weaker-than-expected quarterly earnings came off amid normalised LME aluminium prices in 1Q23 – averaging at USD2,400/tonne (1Q22: USD3,254/tonne, 4Q22: USD2,336/tonne) – and lower contributions from its associates. We still saw a moderate QoQ improvement, supported by easing in raw material prices – especially carbon anode, which stood at CNY6,398 vs 1Q22 and 4Q22’s CNY5,136 and CNY7,043 (mainly due to a drop in pet coke prices). For PMAH’s value-added products (VAP), billet sales and premiums continued to fall as the building and construction sectors stayed weak. Nevertheless, overall VAP volumes remained largely unchanged at c.35-40% of total sales, cushioned by the growth in both A356.2 aluminium alloys and wire rods.

• Outlook. China is the largest consumer and producer of aluminium, and its industrial metals consumption remains subdued – the MoM slowdown in construction activities is further exacerbating concerns over the demand outlook for metals. While our economists expect a further slowdown in China’s economic activities, RHB expects a US GDP growth recovery in 2H23 and strengthening of the USD against the MYR, which we think supports the global commodities price outlook and PMAH’s earnings. Moving forward, the group will continue to strategise itself via its hedging policy: 35-40% at a USD2,400-2,500 range (2023), 30% at USD2,600 (2024), and 15% at USD2,600 and above (2025). We also look forward to the 30k tonnes solar panel extrusion line at its Nilai plant (expected completion: 3Q23) under PMAH’s new initiatives in green industrialisation.

• Earnings revision. We trim our 2023F earnings by 4% in view of normalised aluminium spot prices. Based on our sensitivity analysis, every USD50 change in aluminium price impacts PMAH's earnings by c.4% while every 5% change in the USD impacts bottomline by 4.2% (Figures 3 and 4). Our new DCF-derived TP – incorporating an 8% ESG premium (its ESG score of 3.4 is above the country median) – is now MYR5.38, implying 27x 2023F P/E, 0.6SD below its 5-year mean of 31x. Key risks include a plunge in aluminium prices, sharp weakening of the USD, elevated raw material prices, and global economic growth slowdown, which undermines primary aluminium demand in our view.

Source: RHB Research - 31 May 2023