• Keep OVERWEIGHT; Top Pick: Malayan Cement (LMC). We stay optimistic on the aluminium and cement sectors. Aluminium is poised to benefit from heightened US-China trade tensions and rising demand from green sectors. The cement sector is supported by strong synergy with the construction and property markets. We like LMC as it stands to directly benefit from the construction and property activities resurgence here, given its dominance in West Malaysia. Potential expansion into East Malaysia, which would further increase its national market share, is another re-rating catalyst.
• 3Q24 results recap. Out of the two companies that reported results, Press Metal (PMAH) exceeded expectations while LMC was in line. PMAH's 3Q24 core profit came in at MYR475.8m (-7% QoQ, +49% YoY), bringing 9M24 earnings to MYR1,407.3m (+55% YoY). This was primarily driven by stronger contributions from its associates. Meanwhile, LMC's recorded solid double-digit YoY growth was on stronger sales in aggregates and concrete (+29.3% YoY), with higher selling prices that offset weaker cement sales. Post results, we lift PMAH's FY24F-26F earnings by 14.4%, 12.2%, and 7.5% after revising our associate contributions and cost assumptions, as well as USD/MYR assumptions. LMC's forecasts remain unchanged.
• The aluminium outlook remains upbeat, driven by the recovery in aluminium ASPs and growing awareness of green industries. Our economics team expects the US Federal Funds Rate to be cut by 75bps in 2025 - supporting a potential uptrend for aluminium prices. We believe PMAH should benefit from: i) A hike in global aluminium prices, ii) removal of the 13% tax rebate on aluminium exports by China, and iii) increased demand for aluminium from non-Chinese manufacturers.
• Alumina costs. Alumina prices remained elevated at USD695.40/tonne QTD (+37% QoQ), driven by a tight supply, while carbon anode prices remained stable below CNY4,000/tonne. Although alumina prices pose a downside risk to PMAH, we expect normalisation in 2025, with new projects in Indonesia and India scheduled to commence commercial operations from 1H25. We also acknowledge the impact to be slightly mitigated by better contributions from Bintan Alumina Indonesia (25% share), which forms a natural hedge for the company.
• Bulk cement prices have stabilised and continue to sustain at MYR380/tonne since of Jul 2023 - we foresee it remaining stable, given the expected demand from key projects such as the Penang Light Rail Transit (LRT), West Ipoh Span Expressway, and reinstatement of five LRT Line 3 stations, along with robust demand for industrial projects and property development, particularly high-rise projects in the Klang Valley. These projects are likely to fill in the gap between the end of the cement supply contract for the East Coast Rail Link (end 2024) project and Mass Rapid Transit 3 - the latter is only set to begin construction in 2027. With a range of infrastructure projects planned nationwide, we think building materials companies - especially cement producers - are expected to reap significant benefits from the country's infrastructure initiatives.
• Key downside risks are higher-than-expected raw material costs and a sharp deterioration in global economic conditions, which will taper off construction activities and undermine the demand for aluminium and cement.

Source: RHB Securities Research - 16 Dec 2024