• Reiterate BUY, new MYR6.53 TP (from MYR6.67), 27% upside, c.1% yield. 1H24 core earnings of MYR931.5m were below our and Street’s expectations, as we anticipate a softer quarter ahead. Despite this, we remain optimistic on aluminium, primarily due to the recovery of aluminium ASPs and the "green push" for EVs. Press Metal’s valuation appears undemanding, trading at 22x 2025F P/E (0.7SD below the 5-year mean of 25x).

• Results review. 2Q24 core earnings of MYR511.3m (+21.7% QoQ, +66.8% YoY), brought the 1H24 figure to MYR931.5m (+57.6% YoY), at 50.7% and 48.9% of our and Street’s full year estimates. We consider this a slight miss as we expect a softer 2H24 due to margin pressures from high alumina costs. 1H24 revenue grew 10.9% YoY, driven by stronger LME aluminium prices – averaging at USD2522.80 (+14.5% QoQ, +11.5% YoY) – and higher MJP spot premiums (+28.7% QoQ, +45.2% YoY). 1H24 core net margin improved by 3.6ppts on better smelting margins and a higher share of associates. A second interim DPS of 1.75 sen was declared, bringing 1H24 DPS to 3.5 sen.

• Alumina prices remained elevated amid tight supply at USD430.90/tonne (+25.1% YoY). In contrast, carbon anode prices have eased from the 2022 peak and stabilised at CNY3922.50/tonne in 2Q24. We expect the uptrend in alumina costs to soften gradually as three new projects in Mempawah, Bintan, and Odisha are scheduled to come online between 4Q24 and 2026.

• Outlook. Global aluminium prices recovered from the decline seen over the past few months, on the likelihood of rate cuts by the US Federal Reserve (by September). MJP spot premiums are also seeing an uptrend (+10.1% QoQ as at QTD-August), due to higher freight costs. We foresee demand for aluminium being buoyed by: i) Slow capacity expansion in Indonesia, and ii) higher demand from green sectors like EVs. While the LME aluminium price saw a brief dip in July, likely influenced by weaker macroeconomic data from China, we remain cautiously optimistic on the outlook.

• Forecasts moderated. As results fell short of our expectations, we trimmed FY24F-26F earnings by 7%, 2.5% and 1% after revising our cost assumption. PMAH will continue its hedging policy – 2025: 35% at USD2650, 2026: 30% at USD2700, and 2027: 15% at USD2750. Our new DCF-derived MYR6.53 TP includes an 8% ESG premium, implying 27x 2025F P/E, slightly ahead of its 5-year mean of 25x. We reiterate our BUY call, highlighting PMAH’s cost advantage as well as rising demand from green sectors, potential rate cut boosting global demand, and growing awareness for lower-carbon footprint smelters.

• Key risks: A plunge in aluminium prices, sharp weakening of the USD, elevated raw material prices, and a slowdown in global economic growth which would undermine primary aluminium demand.

Source: RHB Research - 30 Aug 2024