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Thursday, April 20, 2017

Brokers Report: PMB earnings expected to improve with increased production, lower costs




Retain HOLD with a target price (TP) of RM2.62



Press Metal Bhd
(April 19, RM2.79)

Maintain hold with a fair value of RM2.62: The global demand for aluminium is expected to grow modestly at 5% annually from financial year 2017 (FY17) to forecasted FY19 (FY19F), largely attributed to the transportation and construction segments which account for half of the global primary demand, while supply is expected to remain flat at 60 million tonnes. Currently, demand for aluminium stands at 59 million tonnes with supply at 59 million tonnes. The slow supply growth is mainly due to the curb on aluminium production in China where the government has issued a policy draft to cut down production during the winter season.

The curb is to tackle pollution which worsens in winter. Experts reckoned that if the China policy kicks in, they forecast a reduction of 1.3 million tonnes of aluminium production (4% of total production in China).
The positive outlook for aluminium is a boost to Press Metal Bhd’s (PMB) earnings outlook. Earnings is expected to improve by 47%/28%/27% respectively from FY17 to FY19F mainly driven by: (i) Ramped up annual production to full capacity in the fourth quarter of  2016 to 760 million tonnes annually from 705 million tonnes previously, and 120 million tonnes annually downstream at 75% utilisation rate.
We forecast higher average aluminium prices per tonne realised at US$1,785 (RM7,854), US$1,910 and US$2,100, up by 5%/7%/10% for FY17 to FY19F respectively, due to strong demand from the construction and transportation segments globally and the aluminium production cut in China.
(ii) The low production cost, helped by the competitive electricity tariff from hydroelectric power. Cost savings in logistics from the belt conveyer system in the Samalaju Port, which will be ready by the second half of 2017, will give PMB’s savings of US$50 to US$70 per tonne. Together with the low effective corporate tax rate mainly due to tax exemptions from its pioneer status and investment tax incentives, these make PMB the lowest cost aluminium producer in the region. — AmInvestment Bank Research, April 19

Source: AmInvestment Bank Research/ The Edge Financial Daily - 20 April 2017

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