Press Metal’s 1HFY17 net profit on the uptick as aluminium prices continue support
KUALA LUMPUR: Press Metal Bhd’s (Press Metal) net profit for the first half of financial year 2017 (1HFY17) came in within analysts’ expectations.
In a press release, Press Metal announced that net profit for the 1H ended June 30, 2017 (1H17) rose 81.1 per cent to RM298.2 million, from RM164.6 million (after adjusting for insurance claim) a year ago.
According to AmInvestment Bank Bhd (AmInvestment Bank), Press Metal’s 1HFY17 results came in within expectations at 47 per cent of both the research firm’s full-year forecast and consensus estimates.
Meanwhile, Press Metal’s 1H17 core net profit (CNP) of RM290 million also met both the research arm of Kenanga Investment Bank Bhd’s (Kenanga Research) RM648 million forecast at 45 per cent and consensus’ RM636 million estimate at 46 per cent.
Moving forward, with the Chinese government proceeding with its production reforms, Kenanga Research expects slower Chinese smelting activity to tilt demand into a deficit, supporting long-term prices.
The research arm agreed that tightening supply should support prices at least up to 2H18, with focus towards end-2017 due to China’s environmental deadline over the winter months.
However, the research arm expected the positive price benefits to be seen more clearly in FY18, given Press Metal’s forward selling policies of more than 50 per cent of production.
Over the longer run, Kenanga Research expected continued margin expansion with several plant upgrades in the works, including higher billet production capacity and alumina conveyor belt, which are due for completion in 2H17.
“Logistics costs will also be streamlined with the recently launched Samalaju Port and road upgrades, shortening the distance between the Mukah plant and Bintulu Port,” it said.
All in, the research arm expected stronger aluminum prices and productivity upgrades to improve FY17-18E core net margins to 8.310.3 per cent, from 6.5 per cent in FY16.
As for AmInvestment Bank, the research firm continued to like Press Metal because the group is one of the dominant local aluminium players in the local market and average selling price (ASP) is expected to improve with the ongoing China reforms to cut aluminium supply and steady demand growth, particularly from infrastructure projects and automotive segment.
Additionally, Press Metal’s low production cost enables the group to maintain better margin than its competitors.
“However, we believe the current share price has very much reflected Press Metal’s fundamentals,” the research firm said.