KUALA LUMPUR: Press Metal Aluminium Holdings Bhd is poised to post another record results in 2022, as the aluminium prices are expected to stay high in the near term while its fully commissioned P3 plant will lead volume growth.

       According to Kenanga Research, aluminium prices remained robust at US$2,600 to US$2,700 (RM10,872 to RM11,290) per tonne recently, driven by economies reopening-led demand.

       In addition, the major structural de-carbonisation trends for electric vehicles and renewable energy have boosted aluminium demand, leading to prices remaining elevated.

       Year-to-date, aluminium spot prices have risen strongly by 37% to US$2,710 (RM11,332) per tonne as of Dec 17, 2021.

       Kenanga Research maintained its “outperform” call on Press Metal with a target price (TP) of RM6.96.

       The research unit also maintained its “overweight” rating on the building materials sector, saying it continues to believe flat-steel player United U-Li Corp Bhd has strong prospects in the coming quarters.

       United U-Li’s prospects are backed by the dwindling number of competitors facing cashflow issues under the pandemic, as currently there are less than 10 local manufacturers versus a peak of more than 20 manufacturers three years ago.

       Also, currently there is a shortage in raw materials (hot-rolled coil and cold-rolled coil) and coupled with high prices, this will further suppress the smaller competitors (in terms of cashflow).

       Meanwhile, Kenanga Research pointed out that United U-Li’s current orderbook stands at RM200mil (Singapore: RM100mil, Malaysia: RM80mil to RM90mil while other markets such as Myanmar and Bangladesh make up RM20mil to RM30mil) to be delivered in the next six months.

       “Given that current demand far outstrips supply, United U-Li gets to select good paymasters and avoid the bad ones,” said the research unit.

       “We believe United U-Li’s earnings will remain consistent as most of its smaller competitors have been diminished during this pandemic.

       “This will allow the group to regain market share and pricing power to produce a strong pipeline of earnings in the upcoming quarters,” said Kenanga Research, which maintained its “outperform” call on United U-Li with a TP of RM1.85.

       Regarding Ann Joo Resources Bhd, Kenanga Research foresees earnings weakening on reduced margins from lower average selling prices of steel while lagging raw material prices in the previous quarters play catch-up.

       The research unit maintained its “market perform” call on Ann Joo with an unchanged TP of RM1.70, anchored to 0.75 times estimated price-to-book value for the financial year ending Dec 31, 2022 (FY22).

       Kenanga Research noted that China’s long-steel prices have declined almost 20% from its October 2021 peak.

       “Steel demand in China is no longer as strong as before, from an uneven recovery due to China’s zero-Covid policy resulting in sporadic massive lockdowns, and recent housing debt crisis from major property developers, which also reduces demand prospects,” it said.

       Meanwhile, local steel prices have remained stable at RM3,000-per-tonne level throughout this period.

       The research unit believes there is now downside bias to local prices mainly because supply for local steel is anticipated to increase.

       “Due to China’s reduced demand and price, steel manufacturers based in Malaysia which have been supplying billets and rebars to China over the past year will likely divert some of these products back into local market, which would increase local steel products in circulation,” it said.