PRESS METAL ALUMINIUM HOLDINGS BHD

Target price: RM4.05

PRESS Metal Aluminum Holdings Bhd’s first half (1H17) core net profit came in at RM290mil, in line with both consensus’ forecast at 46% and Kenanga Research’s at 45%.

An interim dividend of 1.5 sen was announced for 1H17 of three sen. This, however, was below expectations as it made up 33% of Kenanga Research’s nine sen estimate and 38% of consensus’ eight sen.

The company’s 1H17 core net profit jumped 83% year-on-year on better production volume and higher ringgit aluminum prices by 30%. This is because of the higher US dollar-denominated aluminum prices.

Conversely, core net profit softened slightly quarter-on-quarter by 5% due to the 31% higher tax charge. Profit before tax improved 5% on the back of slight earnings before interest and tax (EBIT) margin improvement on better efficiency.

With the Chinese government proceeding with production reforms, management expected slower Chinese smelting activity to tilt demand into a deficit, supporting long-term prices.

Kenanga Research said tightening supply should support prices at least up into 2H18.

Over the long run, it expected continued margin expansion with several plant upgrades in the works, including higher billet production capacity and an 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.

Kenanga Research maintained its “outperform” rating with an unchanged target price of RM4.05.