RHB Research has maintained its buy call on Press Metal Aluminium Holdings (PMAH) with a target price of RM6.05, 17% upside after it felt assured of the company’s mid-term prospects following a first half 2020 results briefing.
The research house said it expected the company to deliver 2019-2022F earnings CAGR of 30% upon learning that Press Metal’s Samalaju Phase 3 smelting plant and Bintan Phase 1 alumina refinery were still slated for commissioning in the first quarter of 2021 despite restricted labour movement, coupled with the firm uptrend of LME aluminium spot and forward prices.
According to RHB Research, Press Metal has applied for government approval to bring in skilled engineers from China to finalise the commissioning of its Samalaju Phase 3 smelter (360,000 tonnes) and 25%-owned Bintan Phase 1 alumina refinery (1m tonnes) – slated for first quarter of next year (1Q21) – while anticipating full production ramp-up from the second quarter (2Q21).
The subsequent commissioning of Bintan Phase 2 (another 1m tonne) has been moved to fourth quarter of 2021 (4Q21).
Meanwhile, Press Metal’s 20%-owned Shandong Sunstone carbon anode producer is said to have achieved full 300,000 tonnes pa capacity and was expected to provide up to 40% of PMAH’s current carbon anode requirements.
RHB Research further stated that Press Metal’s management believed the recovery in LME aluminium prices to continue beyond the present US$1,750-US$1,800 (RM7,260 – RM7,470) level amid the low interest rate and weakening US dollar environment.
The management also saw a pick-up in regional demand once more, coupled with supply discipline at ex-China markets and had taken advantage of the contango-shaped price recovery by raising 2021’s hedged position from 10% of production volume to 15%, which RHB estimated to average US$1,950/tonne (RM8,088).
The management was quoted as saying that it was prepared to lock in more forward sales should LME futures prices continue to move upwards;
Apart from these, the management also stated that Press Metal’s proportion of value-added products (VAP) sold had recovered from as low as 30 in 2Q20 to 40% currently as its customers were returning to their normal course of business.
For next year (FY2021), the management sees higher VAP volume sales as compared to 2019 which RHB Research believed would imply 40-45% of next year’s enlarged capacity.
The research house concluded it had lowered its 2021F volume and VAP mix assumptions to reflect management’s guidance on the new plants’ minor delay in full production timeline as well as next year’s VAP sales target.
As at 5.00pm today, Press Metal share price was trading at RM5.20 with a market capital of 21 billion. – Sept 4,2020