KUCHING: Press Metal Bhd’s (Press Metal) financial results for the third quarter of 2015 (3Q15) has been viewed as better than expected and its near to medium term outlook is expected to remain bright, according to analysts.
In its 3Q15 financial results announcement on Bursa Malaysia, Press Metal noted that while its RM12.4 million revenue had declined marginally by 1.2 per cent compared with in 3Q14, it was still about the same level as 3Q14. This was mainly due to the substantially weaker ringgit against the US dollar, it added.
“All of our smelting products sales are denominated in US dollar and thus, although our sales volume has reduced, our sales value in ringgit did not drop as much.
“In addition, higher revenue generated by the group’s extrusion division and trading activities taken by Samalaju Smelting Plant in sourcing metal from the opean market to its customers’ orders have also helped to mitigate the lost of production volume for the plant,” the company said in its note.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) in a report, highlighted that Press Metal’s first nine months of 2015 (9M15) core net profit of RM237 million came in above expectations, at 88 and 91 per cent of the research team and market’s estimates, respectively.
“The positive variance is mainly attributable to the better-than-expected margin arising from leaner administrative and other overheads expenses,” it said.
The research team also pointed out that quarter-on-quarter, despite sales volume retreating slightly, 3Q15 revenue rose 7.3 per cent to RM1.02 billion, mainly due to stable sales value in ringgit due to stronger USD, and partial mitigation in lower production volume via sourcing of metal from the open market to fulfil existing customer orders.
Press Metal’s core net profit slumped 38.5 per cent to RM36.9 million, due to lower production volume from Samalaju smelting plant, lower aluminium price, and higher effective tax rate (an increase of 4.8 percentage points to 29 per cent), it added.
Year-on-year (y-o-y), Kenanga Research noted that Press Metal’s core net profit rose 26.8 per cent to RM237 million, on the back of higher revenue (an increase of 3.2 per cent to RM3.02 billion), thanks to margin expansion of 1.5 percentage points to 7.9 per cent.
“We believe this is due to the stronger US dollar against ringgit (an increase of 16.5 per cent to average of RM3.78 per dollar),” it opined.
On the company’s outlook, Kenanga Research viewed that its near to medium term prospects remain bright as its new capacity is expect to drive earnings from January 2016 onwards.
“As we believe the downtrend in aluminium price has bottomed out, we maintained our aluminium price assumption at US$1,700 per metric tonne. We expect aluminium prices to recover from the financial year 2016 (FY16) onwards when demand is expected to recover, driven by growing usage of aluminium in the auto sector,” it added.
Kenanga Research maintained an ‘outperform’ call on the stock.