Press Metal’s earnings to pick up going into FY19
KUALA LUMPUR: Press Metal Aluminium Holdings Bhd’s (Press Metal) earnings have been projected to pick up going into financial year 2019 (FY19) on the back of better product mix and completion of Japan Alumina Associates (JAA) acquisition.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) believed that going into FY19, earnings would pick up on moderating raw material prices and better product mix.
“The group expanded billet capacity by 60,000 metric tonnes (MT) (to 240,000 MT) and wire rod capacity by 50,000 MT (to 200,000 MT) in October 2018, which should lift the sales composition of highvalue products to 60 to 70 per cent in FY19 from 40 to 50 per cent in FY18,” Kenanga Research said.
“Billets and wire rods command a mark-up or premium of US$120150 per MT and generate additional profit of US$60 to US$80 per MT. As such, we believe the new capacities would underpin profit margins and improve earnings by circa five per cent in FY19.”
“In addition, the completion of JAA acquisition by end-first quarter of 2019 (1Q19) should provide a nine-month earnings contribution to the group in FY19, improving earnings by circa three per cent after considering financing costs.”
The research arm also believed alumina prices would moderate from the current level of US$405 per MT, versus its assumption of US$370 per MT for FY19, in the likely case that Norsk Hydro’s Alunorte plant fully restarts its production facility, thus lowering Press Metal’s feedstock costs.
On forecasts, Kenanga Research fine-tuned its FY19E core net profit (CNP) by 0.1 per cent to RM805 million due to housekeeping reasons and introduced FY20E CNP of RM855 million. All in all, Kenanga Research maintained ‘market perform’ with an unchanged target price of RM4.00 per share,
“We continue to like Press Metal for its long-term positive operating outlook and earnings growth potential. However, we believe most of the positives have been priced-in at this juncture.”