KUCHING: Press Metal Aluminium Holdings Bhd (Press Metal) will likely face profit margin squeeze in its second to third quarter (2Q to 3Q22) earnings, coupled with lower revenues due to the recent dip in aluminium spot prices due to an uptick in carbon anode prices, analysts observed.
However, they note that its core earnings for 2Q2) has been projected to come in within the range of RM365 million to RM415 million, barring any unforeseen swings in cost structure.
According to the research arm of Hong Leong Investment Bank Bhd (HLIB Research), this will be driven by the London Metal Exchange (LME) aluminium spot prices averaged at US$2,896 per tonne in 2Q22 (versus the average of US$3,248 per tonne in 1Q22 and US$2,414 per tonne in 2Q21) and significantly higher carbon anode prices.
“From Bloomberg data, we noticed a significant uptick in carbon anode prices – averaging at 7,116 renminbi per tonne in 2Q22, versus 5,170 renminbi per tonne in 1Q22,” HLIB Research said.
“We highlight that carbon anode serves as a catalyst in the production of aluminium and is part of the production cost of Press Metal.
“With that, we are expecting some profit margin squeeze in 2Q to 3Q22 earnings, coupled with lower revenues due to the recent dip in aluminium spot prices.”
The research arm’s 2Q22 core earnings estimate indicated that the first half of 2022’s (1H22) cumulative profits would range from RM786 million to RM836 million, signalling a 70 to 81 per cent year on year (y-o-y) growth from RM461 million SPLY.
“This would make up about 36 to 38 per cent of our financial year 2022 (FY22f) full-year forecast and 41-43 per cent of full-year consensus estimates.”
Looking ahead, HLIB Research cut its FY22-24f net profit forecasts by 15 per cent, 25 per cent and 21 per cent respectively to account for lower average aluminium spot price assumptions of US$2,550 per tonne, US$2,600 per tonne and US$2,650 per tonne for all three forward years (from US$3,150 per tonne and US$3,200 per tonne previously) to reflect the recent dip in global aluminium prices recently.
As a result, HLIB Research made hedging assumptions for FY22f, FY23f and FY24f.
For FY22f, HLIB Research hedged 60 per cent at US$2,400, compared to its average spot price assumption at US$2,550.
As for FY23f, HLIB Reseach hedged 60 per cent at US$2,500 (the research arm’s average spot price assumption is US$2,600) while it hedged 60 per cent at US$2,600 for FY24f, compared to its average spot price assumption at US$2,650.