KUALA LUMPUR (July 15): The recent sell-off of Press Metal Aluminium Holdings Bhd's (KL:PMETAL) shares presents an opportunity to accumulate given the still-elevated aluminium prices, RHB Research said.
Press Metal's valuation remains compelling, as the stock trades at 22 times price-earnings ratio and below its five-year mean, it added.
"We think the premium is justified given the still-elevated aluminium prices, which are expected to be maintained in the near term," RHB said in a note.
RHB maintained its 2026 aluminium price forecast at US$3,250 (RM13,229) per tonne while lowering its 2027 estimates to US$3,050 from US$3,150, due to anticipated supply recovery and Indonesian output.
The house noted that the stock once traded at plus two standard deviation (SD) in May-June 2024, when the critical smelter profitability metric — the alumina-to-aluminium cost ratio — hit 15%-17%.
"If we go back to when aluminium prices were above US$3,000 per tonne (in April 2022), the cost ratio was 12%-15% and Press Metal traded at +1.5SD, with net margins ranging at 9%-11%.
"As such, we think the current valuation is unwarranted, on top of its robust earnings growth in 2026 and Patami (profit after tax and minority interest) margin of 16.7%, which may serve as a potential rerating catalyst for the stock, pushing the valuation higher than the historical mean," it added. SD is a measure on how far a specific data point is above the mean.
The company saw a large sell-off after aluminium prices retreated to a year-to-date average price of US$3,333 per tonne, due to a previous reopening of the Strait of Hormuz boosting optimism for resumption of shipments for the lightweight metal.
However, a resurgence in conflict between US and Iran has congested ports and damaged regional smelters, dampening prospects with the metal now hovering between US$$3,100 and US$$3,200 per tonne.
“We expect the aluminium market to remain in a structural deficit, widening deficit estimates to two to three million tonnes in 2026 and one million tonnes in 2027 versus 600,000 tonnes pre-conflict,” RHB remarked.
With 2026 bringing in a more hawkish US Federal Reserve outlook, the research house predicts at least one rate hike this year, bringing the US dollar-to-ringgit exchange rate to 4.08.
As Press Metal exports an estimated 90% of its products, RHB predicts every 2% appreciation of the US dollar could increase company earnings by 5% assuming no hedging occurs.
The house however trimmed its earnings forecasts for Press Metal by 3% for the financial year ending Dec 31, 2026 (FY2026) and 5% for FY2027, noting that higher carbon anode costs would also affect the group’s bottom line.
Reflecting this, the house maintained its ‘buy’ rating on Press Metal, but lowered its target price to RM9.80 per share from RM10.50, based on a price-earnings ratio of 25 times for FY2027.
An ‘overweight’ assignment has also been given to the basic materials sector as a whole, with RHB noting that Press Metal's valuations being below historical means makes it a more attractive prospect.
“Assuming similar output levels in the second half of 2026, China could largely narrow the aluminium deficit gap caused by the damaged smelters in the Middle East,” the house explained, as China’s recently elevated production of the metal would likely place pressure on the commodity price.
Regardless of the outlook, RHB cautioned that an unexpectedly fast recovery in aluminium supply alongside a plunge in aluminium prices are potential downside risks.