‘Recent weakness in aluminium prices temporary’
KUALA LUMPUR: The recent weakness in aluminium prices is temporary, analysts observe, noting that some recovery could emerge in the near term.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) recapped that the average aluminium price fell 15 per cent to circa US$1,794 in 2019 from US$2,108 per metric tonne (MT) in 2018.
“Recall that aluminium prices fell from more than US$2,100 after the US Treasury lifted the sanction on Rusal, allaying concerns of a supply disruption in the aluminium market,” Kenanga Research said in a building materials sector report.
“However, we understand that Rusal was allowed to continue supplying to its existing customers even during the sanction, which means that the sanction lifting should have no major impact on the aluminium supply landscape.
“As such, we believe the recent weakness in aluminium prices is temporary and should see a recovery in the near term.”
Kenanga Research also highlighted that Press Metal has managed to hedge circa 40 per cent of the group’s financial year 2019 (FY19) aluminium sales volume at US$2,000 to US$2,100 per MT, mitigating concerns of aluminium price weakness.
As such, the research arm maintained ‘outperform’ on Press Metal with unchanged target price of RM5.50 based on FY20E price earnings ratio (PER) of 25.4-fold, implying +0.5 standard deviation (SD) valuation basis, justified by sturdy earnings growth prospects in FY21 (up 24 per cent Core Net Profit growth) on the back of capacity expansion.
“Independent of the expansion, Press Metal’s operating outlook is already looking positive with increasing contribution from valueadded products and a series of upstream acquisition in the pipeline.”