Friday 29 Mar 2024
By
main news image

This article first appeared in Capital, The Edge Malaysia Weekly on May 1, 2017 - May 7, 2017

PRESS Metal Bhd, the largest aluminium smelter in Southeast Asia, is riding high with the rising global aluminium prices. For investors who wish to take advantage of the company’s earnings wave, its warrant, dubbed ­PMETAL-WC, appears to be a ­cheaper ­alternative.

Press Metal’s shares have risen by 78% year to date, while PMETAL-WC has gained 97%.

PMETAL-WC, which carries a 39 sen strike price and a one-to-one conversion ratio, will expire on Aug 22, 2019.

Despite the strong run, the derivative, which closed at RM2.40 last Wednesday, is still trading at a discount of 1.4% to the mother share, which closed at RM2.83 on the same day. At zero premium, the warrant would theoretically be worth RM2.44.

There are three “buy”, two “hold” and no “sell” calls on Press Metal, with target prices ranging from AmInvestment Bank’s RM2.62 to UOB Kay Hian Research’s RM3.30, Bloomberg data show.

If Press Metal rises 9.2% to reach the ­average target price of RM3.09, PMETAL-WC should theoretically be worth 12.5% more at RM2.70, assuming zero premium to the ­underlying securities. Likewise, PMETAL-WC should be worth 21.3% more at RM2.91 if the underlying shares reach the highest target price of RM3.30.

Press Metal was trading at 17.36 times forward earnings at the time of writing.

Speaking to The Edge after Press Metal’s EGM on Feb 28, CEO Datuk Paul Koon Poh Keong said at present, he sees no reason why aluminium prices, which have been holding up quite well in recent months, should ­reverse course.

“Prices of commodities, especially aluminium, have gone up more than last year. We have to deliver the results. Our share price performance has to be results-driven and grow healthily,” he said.

“Press Metal is set to deliver a three-year earnings compound annual growth rate of 21.9% in 2017/2019, driven by full capacity, higher aluminium prices, a weak ringgit and cost savings in logistics,” UOB Kay Hian said when initiating coverage on Press Metal in a April 6 note.

On March 31, Kenanga Research reiterated its “outperform” call and RM3.15 target price following a visit to Press Metal’s ­Samalaju plant. “Continuous plant upgrades for high-margin product capacity and better cost efficiency will lead to margin improvement in the second half of this year, while the outlook is positive in the short term as well, thanks to strong aluminium prices,” it said.

 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.

      Print
      Text Size
      Share