Press Metal recorded a solid earnings recovery in 3QFY20 and with the new additional capacity from Samalaju Phase 3, analysts expect the company to chart record earnings in FY21.
KUCHING: Press Metal Aluminium Holdings Bhd (Press Metal) recorded a solid earnings recovery in the third quarter of the financial year 2020 (3QFY20) and with the new additional capacity from Samalaju Phase 3, analysts expect the company to chart record earnings in FY21.
“The new additional 42 per cent capacity from Samalaju Phase 3 which is on track to come on-stream next January will drive FY21 to chart record-earnings,” the research team at Kenanga Investment Bank Bhd (Kenanga Research) highlighted in its report.
It also noted that a solid earnings recovery in 3QFY20 is highly anticipated as aluminium prices have recovered swiftly after collapsing to as low as US$1,425 per metric tonne in early Apr. It trades near US$2,000 per metric tonne currently.
“However, the recovery of alumina has been lagging, still tracking closely at circa 15 per cent of aluminium prices (currently at 16.3 per cent YTD compared with our FY20 assumption of 17 per cent).
“As such, we raised FY20 earnings estimate by four per cent as we lowered alumina-to-aluminium price ratio to 16.8 per cent. We also upgraded FY21 forecast by 29 per cent on higher aluminium price to US$1,950 per metric tonne from US$1,850 per metric tonne, against December 2021 futures price of more than USD2,000 per metric tonne, on the back of 42 per cent new capacity next Jan with unchanged alumina-to-aluminium price ratio of 16.5 per cent,” it added.
Meanwhile, the research team at AmInvestment Bank Bhd (AmInvestment) said while the outlook for commodities in general, including aluminium, has improved, it said it is still mindful of Press Metal’s premium valuations compared with that of its much larger global peers.
“On a brighter note, Press Metal recently signed a 15-year power purchase agreement (PPA) with Sarawak Energy Bhd for the supply of 500MW of electricity, enabling it to power an additional annual aluminium smelting capacity of 320,000 tonnes.
“This will boost its overall smelting capacity by 42 per cent to 1.08 million tonnes by 2021 from 760,000 tonnes currently,” AmInvestment said.
The research team retained its ‘hold’ recommendation on the stock while Kenanga Research maintained its ‘outperform’ rating with a ‘buy on price up-cycle’ recommendation.
It noted, “Since our upgrading call three months ago, its share price has risen 35 per cent but we still see upside on the stock given the strong aluminium price rally and we believe our FY21 assumption of US$1,950 per metric tonne is not excessive.”