Higher aluminium prices boost Press Metal profits in FY16 beating analysts’ forecast

Press Metal Bhd’s results for FY 2016 have beaten analysts’ forecast by reporting a nearly threefold increase of profit before tax (PBT) from RM232 million to RM689.4 million. Analysts are positive on the group’s prospects for first quarter of 2017 (1Q17).

Press Metal’s FY16 core net profit (CNP) of RM430 million exceeded the RM343 million forecast of the research arm of Kenanga Investment Bank Bhd (Kenanga Research). The improved profit was driven by higher aluminium prices and better-than-expected margins after the ramp-up of its Samalaju Phase 2 plant.

Kenanga Research is optimistic on the group’s prospects in Q12017 as LME aluminium prices have continued rising to an YTD average of US$1,818 per tonne.

“Meanwhile, management noted the positive sentiment for commodities thanks to fiscal stimulus from China and potential limits on Chinese smelting activity in the winter,” the research arm said in a statement.

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Kenanga Research is also optimistic on long-term margin expansion as the company is taking up measures to improve cost efficiency and streamline raw material sources. The research arm expects the growth to be driven by increased share of high-value alloy production supported by lower-than-average electricity cost, opening of new port facilities like Samalaju Port and pioneer tax benefits.

 “We remain positive on Press Metal as short-term prospects are bright on higher aluminium prices, while long-term earnings should be sustained by efficiency improvements and highly competitive cost structure against its global peers,” the research arm added.

Kenanga Research has increased its FY17E CNP for Press Metal by 15 per cent considering the above facts. The research arm also forecasted FY18E CNP of RM658 million with an YOY earnings growth of 11 per cent.