The Malaysian aluminium producer, PRESS Metal Aluminium Holdings Bhd’s Q2 2021 earnings are estimated to escalate 30%-40% to RM265-RM285 million, which is triggered by a higher London Metal Exchange (LME) spot average of $2,400 per tonne and enhanced smelting output.

One of the most recognised banks of Malaysia, RHB Investment Bank Bhd stated amid the Full Movement Control Order in June, the impact was largely limited to the aluminium company’s downstream extrusion operations.

Lester Siew, an RHB analyst, said: “We expect the first half of 2021 (1H21) core profit to rise 150% year-on-year (YoY) with 2Q21 forecast (2Q21F) earnings up 30%-40% quarter-on-quarter on stronger LME aluminium prices, alongside improved sales volumes as production picks up at its Samalaju Phase 3 smelter by 320 kilotonnes per annum.”

“Press Metal’s earnings momentum should continue to stand out in 2H21F driven by continued average selling price (ASP) growth and capacity expansion as well as looks sustainable over FY22-23F due to attractive forward hedging opportunities”, Siew further added.

However, LME aluminium prices pursued to incline strongly over the last month to a new decade-high of $2,600 per tonne despite the commodity basket’s volatility from May to June.

“The longer-dated futures have risen in tandem, providing a solid opportunity for Press Metal to further hedge its forward sales at LME prices of US$2,500 per tonne versus 50% of 2021F volume at US$2,050 and 40% of 2022F at US$2,150 currently,” Siew stated.

“In turn, it would be structurally backed by the aluminium industry’s environmentally-driven supply-side reforms, while incremental demand by new energy technologies such as electric vehicles and solar power build-outs that has continued to materialise this year-to-date,” Siew noted.

Concurrently, Press Metal’s share price has yet to capture the renewed strength in aluminium prices whereas global peers have gained another leg over the past three months.

The analyst said: “This is due to the spill-over effect from the broad domestic market’s recent weakness, given concerns like political uncertainties, downside risks to the local economy amidst prevailing Covid19 outbreaks and rolling lockdown measures.”

“We continue to like Press Metal for its compelling three-year earnings compounded annual growth rate of 78%; favourable environmental, social, and governance positioning; and an attractive proxy (based on its 16 times 2022F price-to-earnings ratio, -1 standard deviation below the five-year mean) to play the reflation trade,” Siew said.