Press Metal’s earnings to pick up in 2H18 on stronger US dollar-ringgit

KUCHING: Press Metal Aluminium Holdings Bhd’s ( Press Metal) earnings have been projected to pick up in the second half of 2018 (2H18) due to stronger US dollar-ringgit, lower carbon anode prices and better product mix.

According to the research arm of Kenanga Investment Bank Bhd ( Kenanga Research), there is normally a six to eight weeks impact lag in capturing the fluctuations in carbon anode prices due to an order-to- delivery time gap.

Hence, Kenanga Research believed the full benefit of lower carbon anode price would only kick in during the third quarter of 2018 (3Q18).

“In addition, we are upbeat about the group’s ongoing plan to raise wire rod capacity to 200,000 metric tonnes ( MT) by year- end.

“This should lift the composition of high-value product to near 50 per cent and underpin profit margins in 2H,” it said.

However, the research arm noted that news flows such as US’ sanctions on Rusal and partial closure of Brazil’s Alunorte plant could continue to create volatility in the alumina and aluminium markets and affect Press Metal’s profitability.

“Should the said sanction be lifted or Alunorte plant restart, aluminium and alumina prices could see a temporary pullback, which is unfavourable to Press Metal given that it hedges alumina inputs but not aluminium sales.”

Press Metal’s profit for the six months ended June 30, 2018 amounted to RM391.63 million, up from RM375.95 million the corresponding period of the previous year.

The group’s 1H18 core net profit of RM316 million came in within both Kenanga Research’s RM720 million forecast at 44 per cent and consensus’ RM761 million estimate at 42 per cent.

Kenanga Research thus maintained its financial year 2018-2019 estimate (FY18-19E) at RM720 million- RM1.01 billion as earnings were in line with its projections.

The research arm’s FY18E aluminium price assumption was also maint ained at RM2,0 0 0 per MT despite 1H18 averaging RM2,207 per MT.

“We believe prices may pull back to RM1,800 per MT on possible restarting of the Alunorte plant and Rusal sanction relief.”

All in, Kenanga Research continued to like Press Metal given the group’s long- term positive operating outlook a nd ea r n i n g s gr owt h potential.

“However, at recent prices, we see limited upside on the stock and expect substantial volatility in both aluminium and raw materials prices.”

News flows such as US’ sanctions on Rusal and partial closure of Brazil’s Alunorte plant could continue to create volatility in the alumina and aluminium markets and affect Press Metal’s profitability.