Press Metal Aluminium Sturdy Earnings Growth Likely - Kenanga Research

Press Metal Aluminium Holdings Bhd’s third quarter ended Sept 30 of financial year 2019results matched expectations, with its core profit rising 29% sequentially to MYR 137.5 million, bringing its core profit for the nine months to MYR 354.7 million. Despite its revenue dipping 1% to MYR 2.12 billion from YR 2.13 billion, its core earnings for 3QFY19 leapt 29% QoQ to MYR 137.5 million, from RM106.5 million, due to stabilising alumina and carbon anode prices, especially as alumina prices normalised to 16% to 17% of aluminium London Metal Exchange price currently above 20% since 2QFY18. However, the slight decline in revenue was primarily due to a lower aluminium market price down 1.3% QoQ to USD 1,872.80 per tonne. Year-on-year, its 3QFY19 core profit plummeted 25% from MYR 183.2 million to MYR 137.5 million, while revenue declined 11% from MYR 2.38 billion, largely attributed to the aluminium market price down 14.3% from USD 2,186.2 per tonne for 3QFY18. The lower earnings were partly cushioned by lower raw material costs. Its 9MFY19 core profit contracted 28% to MYR 354.7 million, from MYR 490 million previously, on a 7% decline in revenue, owing to the same reasons as the aluminium market price fell 15.5% to USD 1,923.8 per tonne, from USD 2,278.8 per tonne for 9MFY18.

Kenanga Research said “While alumina prices have normalised to 16% to 17% of the aluminium LME price now at about USD 285 per tonne from above US$300 per tonne level in 3QFY19, the benefit of the drop in alumina prices should be fully felt from 4QFY19. For FY20 and FY21, we expect a sturdy earnings growth for Press Metal Aluminium on a 42% smelting capacity expansion, cheaper alumina prices and a rising sales composition of high-value products, for instance, billet and wire rod.”

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