KUALA LUMPUR (July 15): Press Metal Aluminium Holdings Bhd’s (KL:PMETAL) core earnings in the second quarter could potentially surge by up to 20% quarter-on-quarter (q-o-q) and as much as 60% on year-on-year thanks to higher prices, according to Hong Leong Investment Bank.
The company could deliver earnings in the range of RM480 million and RM500 million for the second quarter ended June 30, 2024 (2QFY2024), according to HLIB’s earnings preview note on Monday. That could lift the first half of FY2024’s sum by 51% to between RM897 million and RM917 million, it said.
The bullish forecast is based on stronger London Metal Exchange (LME) aluminium prices, HLIB said, maintaining its “buy” call on Press Metal with an unchanged target price of RM6.51.
Average LME aluminium price rose 15% q-o-q to US$2,523 (RM11,791) per tonne, driven by Russian aluminium curb by the West, better-than-expected demand growth from China and continued supply constraints in China and Europe during the quarter, said HLIB.
The research firm noted that the largest aluminium smelter in Southeast Asia by capacity also had a better hedging position at US$2,600 versus US$2,300 in FY2023.
With aluminium price standing at US$2,500, “we view that its risk and reward profile remains favourable as Press Metal is set to achieve a solid double-digit earnings growth” in the financial year ending Dec 31, 2024 (FY2024), which is “respectable as a KLCI-constituent blue chip,” it said.
HLIB flagged that alumina price, one of the key raw materials it needs for its smelting operations, is on the rise.
Alumina price had increased 14% q-o-q due to tightening supply following Alcoa’s suspension of 2.2 million tonnes at its Kwinana site and Rio Tinto’s force majeure declaration on its supplies due to natural gas shortage.
“All in, we still expect a decent” q-o-q earnings growth from as higher alumina price could aid contribution from its 25%-associate PT Bintan Alumina Indonesia, it added.
Overall, the consensus forecasts Press Metal's annual net profit to be at RM1.9 billion for FY2024 versus RM1.2 billion for FY2023, according to Bloomberg.
Of the 12 analysts tracking Press Metal, the majority of 10 have “buy” calls, while two gave “hold” ratings, with a 12-month average target price of RM6.30 — indicating a potential upside of 4.65% from its current share price. There were no “sell” rating.
Looking at the second half of this year (2H2024), HLIB forecasts aluminium prices staying sideways due to some “counterbalancing” factors.
Upside potential could come from China’s aluminium consumption, which rose faster than the growth in output in the first four months of 2024, signalling a continued deficit should momentum persist, while European smelters are still adopting a wait-and-see approach before restarting capacity due to uncompetitive utility costs.
On downside risks, the research house cited subdued restocking activities in the near term due to elevated prices amid weak industrial demand, and continued capacity resumption in Yunnan — as hydropower supply returns following easing droughts.
Press Metal's net profit for the three months ended March 31, 2024 (1QFY2024) was RM408.04 million compared to RM281.97 million in 1QFY2023, thanks to higher sales volume and a stronger US dollar. Revenue for the quarter rose 17% to RM3.62 billion from RM3.07 billion in 1QFY2023.
The company declared a first interim dividend of 1.75 sen for 1QFY2024, the same amount in the previous year’s corresponding period.
As at 4pm, Press Metal’s shares price rose six sen or 1.01% to RM6.02, bringing the group a market capitalisation of RM49.6 billion. Year to date, the stock has risen 25%.