KUALA LUMPUR: The outlook appears to be solid for Press Metal Aluminium Holdings Bhd, given the anticipation that aluminium prices will stay high at their present levels, say analysts.

       The aluminium producer is also expected to benefit from the improved capacity at its plants.

       According to Kenanga Research, Press Metal’s additional production capacity is due to the full commissioning of its P3 smelting plant in October 2021.

       “Although the aluminium price currently is off its recent peak, it is still more than 10% higher than the average price that was recorded in 2021.

       “As such, we remain upbeat on the group’s earnings prospects, given aluminium prices are expected to stay high in the near term,” the research house said.

       Based on these reasons, Kenanga Research expects Press Metal to net another record year in the financial year 2022 (FY22).

       “The high aluminium price will continue to benefit Press Metal.

       “However, we believe our previous aluminium price assumption of US$2,600 to US$2,800 (RM11,387 to RM12,263) per tonne for FY22-FY23 is too optimistic.

       “Thus, we lower our assumption to US$2,550 to US$2,650 (RM11,168 to RM11,606) per tonne, and coupled with RM26.7mil final settlement with the Inland Revenue Board’s tax assessment dispute to be paid in FY22, we cut our FY22-FY23 earnings estimates by 6%-14%,” it said.

       Kenanga Research continues to rate the stock an “outperform” but with a reduced target price of RM6.68 from RM8.63 previously.

       “We lowered our targeted earnings multiplier to 26 times FY23 price-to-earnings ratio (PER) from 33 times FY22 PER as aluminium prices are unlikely to hit the recent high in the near future.

       “Despite cutting estimates and valuation, we still like the stock, given its earnings prospect,” it said.

       RHB Research said the capacity utilisation rates for Press Metal’s phases one and two smelters were lower at 92% on delayed maintenance due to the lockdowns and labour shortages.

       “Press Metal had anticipated this and the maintenance programme is now normalised.

       “Hence, we anticipate utilisation rates to reach optimum levels in the second half. Samalaju phase three is now operating at full capacity,” RHB Research said.

       It said Bintan Alumina Indonesia phase two is currently 48% complete and is slated for commissioning by the fourth quarter, which would increase capacity to two million tonnes.

       “A new billet casting line with 80,000 tonnes of capacity, which is slated for commissioning in June, will also be added to cater for the increasing demand,” it added.

       RHB Research has maintained its “buy” call on the stock but with a lower sum-of-parts derived target price of RM7.90.

       Its target price implies a 20-time FY22 forecast PER, which is close to its five-year mean.

       “This is after imputing a 6% environmental, social and governance (ESG) premium based on our in-house ESG methodology,” RHB Research said.

       The research house had also trimmed its FY22-FY24 forecast earnings by 1%-4%, as it had updated its model assumptions and accounted for raw material price trends.

       Press Metal has hedged 60%, 35% and 25% of its FY22-FY24 sales volumes at US$2,400 to US$2,600 (RM10,511 to RM11,387), RHB Research said.