Analysts positive on Press Metal despite volatile global aluminium market
KOTA KINABALU: Press Metal Bhd’s (Press Metal) prospects has been viewed positively by analysts despite the current volatile global aluminium market as the company are taking steps to reduce cost risks, improve efficiency and increase its value-added product mix.
“With many unresolved issues in the global aluminium market, we continue to expect volatility through the year, which will require nimble action from a trading standpoint.
“However, we are positive on Press Metal’s operating prospects given the measures taken by management to hedge cost risks, improve efficiency and increase its value-added product mix,” the research arm of Kenanga Investment Bank Bhd (Kenanga Research) said in a report.
It pointed out that Press Metal has acknowledged the recent volatility in aluminium prices as global markets react to the rash of material news, including onand-off US sanctions, real and perceived disruptions to alumina supply, and Chinese production outlook upon the end of its winter season capacity cuts.
“We continue to like Press Metal given its positive operating outlook and good earnings growth potential,” said Kenanga Research.
Meanwhile, on Press Metal’s first quarter of 2018 (1Q18) results, the research team noted that the company’s core net profit (CNP) of RM142 million for the quarter came within expectations but fell short of consensus’ forecast.
It said, the expectation gap was likely due to the market underestimating the impact of higher raw material costs for the quarter.
“1Q18 CNP weakened five per cent to RM142 million despite revenue rising by 10 per cent to RM2.13 billion on the back of higher aluminium prices (17 per cent to US$2,280/metric tonne). This was largely due to increased raw material prices where alumina prices rose by 23 per cent to US$382/MT and carbon cost (represented by pet coke) increased by 50 per cent to 284 yuan/MT (RM176/MT).
“As a result, operating margin softened to 11.9 per cent (from 12.6 per cent).
“Quarter-on-quarter (q-o-q), CNP softened 16 per cent on higher tax charges (up 47 per cent to RM18 million) and flat revenue (down one per cent) since aluminium prices were minimally higher (up two per cent to US$2,155/MT).
“Otherwise, we observe flat EBIT (up two per cent to RM253 million) as higher carbon cost (up 11 per cent) was offset by lower alumina (down four per cent) prices,” the research team epxlained.
All in, Kenanga Research pegged a ‘market perform’ to the stock.