Analysts positive on Press Metal’s long-term prospects
KUCHING: Press Metal Aluminium Holdings Bhd’s (Press Metal) long-term earnings prospects have been viewed positively by analysts despite the near-term uncertainties stemming from trade sanctions and plant closures.
Following Press Metal’s second quarter of 2018 ( 2Q18) results briefing cum extrusion plant tour, the research team at Kenanga Investment Bank Bhd (Kenanga Research) said it is positive on its long-term earnings outlook.
However, it pointed out that in the short-term, the company is besieged with uncertainties arising from recent events such as US sanctions on Rusal and partial closure of Brazil’s Alunorte plant.
“We continue to like Press Metal given its long-term positive operating outlook and earnings growth potential.
“However, at recent prices, we see limited upside on the stock and we expect substantial volatility in both aluminium and raw materials prices,” the research team said.
Meanwhile, it noted that given its solid balance sheet, Press Metal is on the lookout for acquisition opportunities in either upstream or downstream.
“That said, management is mindful that target upstream companies (alumina or carbon anodes) may be hard to come by given the current high prices.
“Hence, while we acknowledge it is a strategic move, we do not expect any deal for the rest of the financial year 2018 (FY18),” it added.
On the company’s operations, Kenanga Research said Press Metal recently expanded its extrusion capacity, in China to 160,000 metric tonnes (MT) from 120,000 MT, and in Klang to 50,000 MT from 40,000 MT.
“The new facility in China has been operational since Marcj 2018, while the new Klang facility was commissioned a few weeks ago.
“With the new capacities, the utilisation rate is currently running at circa 70 per cent (from more than 80 per cent previously).
“Management has indicated that it would likely take eight to 12 months to ramp up production to previous levels.
“Nevertheless, we note that the incremental bottom-line contribution from this is minimal at circa one per cent. The segment currently contributes circa 10 per cent of the group’s profit after tax (PAT),” the research team explained. Aside from that, Kenanga Research pointed out that Press Metal’s 20 per cent joint-venture with Sunstone in China for the manufacture of pre-baked carbon anodes is on track to begin operations by October 2018.
It added that moderating inflationary pressure, strengthening domestic demand and accommodative economic policies as well as strong re-exports growth are the expected to be major drivers for GDP performance in the second half 2018 (2H18).
Moving forward, MIDF Research believed domestic demand especially private consumption would continue supporting economic growth amid of lower marginal propensity to tax, increase disposable income, moderating inflationary pressure and stable labor market.
As for the investment side, public investment is expected by the research arm to further contract in 2H18 as the current Pakatan Harapan ( PH) government would review and restructure fiscal planning as well as governmentbacked infrastructure projects.
“Private investment to expand at steady pace particularly with the expanding of re- exports activity.”
On exports, MIDF Research maintained its prediction that Malaysia’s exports will grow by 9.3 per cent in 2018.