Press Metal Aluminium Holdings in Malaysia projects stronger earnings in coming years

“Press Metal Aluminium Holdings Bhd is expected to post stronger earnings in the next two years as aluminium prices are likely to strengthen on better demand,” according to UOB Kay Hian Research.

The research firm has increased its earnings forecasts for Press Metal for the financial years ending 31^st Dec’20 (FY20) and FY21 by 4% and 16%, respectively, to account for higher spot aluminium and alumina prices, which it expects to be partially offset by weaker US dollar against the Malaysian ringgit.

UOB Kay Hian said: “It is assuming higher spot aluminium prices of US$1,685 per tonne and US$1,750 per tonne for 2020 and 2021, respectively.”

The post complete down period has depicted that London Metal Exchange aluminium prices have been recovering at around US$1,778 per tonne presently from the low of US$1,462 per tonne at end-March 2020.

“The 22% surge is against the backdrop of stronger demand for physical aluminium and deliveries globally, which have also driven Shanghai Futures Exchange Aluminium (SFEA) prices up by 30% over the past three months.”

“Based on our sensitivity analysis, every $100-per-tonne increase to our previous spot aluminium price assumption of US$1,600 per tonne would increase Press Metal’s earnings by RM219mil annually, assuming alumina and carbon anode prices of US$256 and 2,720 yuan per tonne, respectively,” UOB Kay Hian noted.

Concurrently, it said: “The silver lining that would ease costs came from the slower alumina prices recovery, which is about US$280.”

The resumption of Norsk Hydro Alunorte’s operations in 2019, prices of alumina, which accounts for 32% to 40% of Press Metal’s cost of goods sold, have been hovering at $230 to $228 per tonne year-to-date from 2019’s $330.

As per UOB Kay Hian Research’s analysis, every $20-per-tonne increase to its previous alumina cost assumption of $256 per tonne would reduce Press Metal’s earnings by RM101mil, assuming no hedging being done at all.

Moreover, it said that every 1% strengthening of the ringgit versus the US dollar from its base assumption would also reduce the group’s 2020 and 2021 earnings by 5%, respectively.

“Should aluminium prices continue to go up – based on our sensitivity analysis, every $50 per tonne increase to our FY21 spot aluminium price assumption of US$1,750 per tonne would increase Press Metal’s earnings by 13% annually, assuming other input costs being equal.”