Hong Leong Investment Bank Bhd (HLIB) has maintained its “buy” rating on Press Metal Aluminium Holdings (PMetal) at RM5.28, with a lower target price of RM7.59 (down from RM7.71). HLIB forecasted a net profit of between RM420 million and RM470 million for Press Metal in 1Q2022, up 47 per cent to 64 per cent quarterly and 104 per cent to 128 per cent year-on-year.
“If met, we would deem the results to be within our expectations as we believe that PMetal is on track to more than double its profits y-o-y in FY22 due to: (i) elevated aluminium prices; (ii) full commissioning of its Phase 3 Samalaju expansion; and (iii) further contribution from its 25%-owned PT Bintan alumina refinery,” said HLIB.
Aluminium prices will make a reversal in expectation of an increase in aluminium consumption from China, according to HLIB, as a result of China's relaxing domestic new Covid-19 cases, likely relaxation of its SOP, and reopening of its key economies.
Due to higher aluminium prices, the completion of its Phase 3 Samalaju expansion, and further contributions from its 25 percent-owned PT Bintan alumina refinery, HLIB predicted that Press Metal would more than treble its earnings in the fiscal year 2022.
“Hence, current PMetal’s 40% correction from YTD high of RM7.40 provides a good opportunity for investors to accumulate, as its share price is highly correlated to aluminium prices (+95% correlation based on 3Y historical data). After some housekeeping measures: (i) diluting the group’s share base post-private placement; and (ii) updating the group’s audited numbers from its recently released FY21 annual report, we maintain 'buy' with a slightly lower TP of RM7.59 (20x P/E on FY23F EPS),” added Hong Leong Investment Bank Bhd.
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