HLIB Research predicts Press Metal Aluminium to report significant growth in profit

Hong Leong Investment Bank (HLIB) Research expects Press Metal Aluminium Holdings Bhd to report significant growth in profit due to higher aluminium prices and the commissioning of Samalaju Phase 3.

HLIB Research has also started coverage of the company at RM8.40 with a buy call and target price (TP) of RM10, reported theedgemarkets.com.

HLIB Research analyst Low Jin Wu expects the company’s earnings to stand at RM441.3 million for the financial year ended Dec 31, 2020 (FY20) despite Covid-19 pandemic.

 “We expect FY21 and FY22 earnings to come in significantly stronger at RM755.7 million and RM999.9 million respectively due to higher aluminium prices and demand from the recovering global economic outlook and lower net carbon initiatives,” he said.

Average aluminium prices are likely to stand at US$2,000/US$2,100/US$2,100 per ton for FY21 to FY23 on improved aluminium market.

“While Covid-19 significantly lowered aluminium demand and prices for the most part of 2020, high demand for the food packaging industry ensured that aluminium prices did not crash below levels seen in 2016.

“Aluminium prices have since risen through higher demand from China due to its better-than-expected economic recovery.”

The company’s revenue and profit compound annual growth rates (CAGR) is likely to come in at 13% and 29% respectively from FY20 to FY23 due to its 320,000 tonnes per year of additional capacity, Low Jin Wu expects.

“The additional capacity would bring its total aluminium smelting capacity from 760,000 mtpa to 1,080,000 mtpa (+42%).”

 “Thereafter, its total capex is expected to be about RM70 million yearly, barring any additions to its value-added capacity.”