KUALA LUMPUR (Oct 3): Press Metal Aluminium Holdings Bhd’s (KL:PMETAL) earnings in the third quarter could be softer, partly due to stronger ringgit that weighs on its exports receipts, RHB Investment Bank (RHB IB) flagged.
Every 1% change in the rate of the ringgit against the US dollar affects Press Metal’s bottomline by 1.8%-2.0%, the research house said in a Thursday note. The July-September quarter is also likely affected by weaker aluminium prices, higher alumina costs, and a fire at its Samalaju factory, it noted.
“While Press Metal’s earnings profile will be negatively affected, we believe the impact will be mitigated by good fundamental prospects for aluminium prices,” RHB IB said.
Shares of Press Metal have declined 14% since July 1, as expectations built up for the US Federal Reserve to cut interest rates for the first time in more than four years. The ringgit has also appreciated some 12% against the US dollar from the start of July.
The decline has also trimmed Press Metal’s year-to-date gains to just 3%.
Alumina costs remained elevated amid tight supply at US$508.50 per tonne in the third quarter and “we expect prices to remain high before normalising in 2025, due to increasing supply” from refinery expansions in Indonesia and India, RHB IB said.
Prices of aluminium traded on the London Metal Exchange, meanwhile, have declined nearly 6% in the third quarter, from the second quarter.
All in all, the house estimates that Press Metal would make RM250 million to RM300 million in core earnings for the quarter ended September 2024, following the latest earnings revision.
A wide majority of 13 out of 14 research houses covering the stock still have a “buy” call on the stock, including RHB IB, with only one remaining on a “hold” call. The consensus’ 12-month target price is RM6.15, according to Bloomberg, implying a return potential of 24% from its last price of RM4.96.
“Valuations remain undemanding” at 23 times 2025’s earnings, below the five-year historical mean, “justifying our rating on the stock,” RHB IB said, adding that Press Metal is one of the lowest-cost smelters globally, while the potential of further US Fed rate cuts will boost global demand for aluminium.