KUCHING: Press Metal Aluminium Holdings Bhd’s (Press Metal) prospects have been viewed favourably with ongoing catalysts including being a beneficiary of a structural demand shift, and the favourable aluminium cost ratio.

“The odds remain in Press Metal’s favour, with ongoing catalysts including being a beneficiary of a structural demand shift, and the favourable alumina-to-aluminium cost ratio,” said the research team at RHB Investment Bank Bhd (RHB Investment) in a recent report.

It pointed out that the current LME aluminium price of circa US$2,600 has surpassed its expected trading range of US$2,300 to US$2,500, following the reopening of China’s borders.

“LME aluminium prices recently rebounded to US$2,600, averaging at US$2,500 per metric tonne in January compared with US$2,400 in December 2022, as the relaxation of China’s Covid-19 restrictions fuel optimism of a potential demand recovery. That said, the official Manufacturing Purchasing Manager Index (PMI) rose to a -month high of 50.1 in January, up from 47 in December 2022, according to China’s National Bureau of Statistic (NBS).

“We expect Press Metal’s timely shift to hedge 35 per cent of its forward sales in 2023 (from 60 per cent in 2022), to accord it with ample upside from the strengthening of aluminium prices,” it said.

The average alumina price edged up slightly to US$343 per metric tonne in January, from US$320 per metric tonne in 4Q22, as production was dragged by a seasonally weaker production month in conjunction with the Lunar New Year and intermittent power curtailment in selected regions of China.

“Nevertheless, the average alumina-to-aluminium cost ratio stood at 13.8 per cent in January, largely unchanged from 4Q22. Carbon anode prices eased seven per cent averaging at 6,540 Chinese yuan in January, compared with 7,040 Chinese yuan in 4Q22,” RHB Investment said.

All in, the research team expect Press Metal’s 4Q22 topline y-o-y growth to moderate to 1 per cent in view of the softer aluminium prices.

“However, 4Q22 core earnings y-o-y growth should rise 16 per cent as a result of easing alumina price. We expect the current supply tightness caused by the continued RussiaUkraine war, the matured stage of the monetary cycle, and the reopening of China’s economy to continue lending support to aluminium prices,” it added.

“We lift 2023 to 2024 earnings estimates by six and nine per cent in view of the rebound in aluminium prices coupled with a favourable cost ratio. Our 2023 aluminium price forecast is now US$2,600 from US$2,400. Every US$50 appreciation to aluminium prices could increase Press Metal’s earnings by four per cent,” the research team said.

Aside from that, RHB Investment maintained its ‘buy’ recommendation on the stock.