KUALA LUMPUR (Nov 12): RHB Investment Bank Bhd has raised its target price (TP) for Press Metal Aluminium Holdings Bhd's shares to RM7.10 from RM6.05 as average aluminium futures prices of about US$1,930 a tonne on the London Metal Exchange (LME) continue to fuel Press Metal's earnings prospects.

In a note today, RHB analyst Lester Siew said RHB however maintains its buy call for Press Metal's shares. "We believe the metal's price trend is likely to sustain, as we see more headroom for global downstream demand to recover to pre-pandemic levels," Siew said.

"We anticipate sequential core earnings improvement in 2HFY20 (3QFY20F: RM110 million-130 million) in tandem with higher aluminium prices as well as recovery in LME physical premiums and value-added products mix. Subsequently, FY21F is set to mark the transition from recovery to a new growth phase, underpinned by Samalaju’s Phase 3 expansion in January 2021 coupled with the firmer LME forward prices — US$1,930-1,980/tonne average for 2021-22F — which should incentivise management to further hedge its forward sales volume (2021F: c.15% at US$1,950/tonne).

"FY20-21F earnings [forecast for Press Metal] raised 17%-18%, after revising our commodity price assumptions while ascribing zero Sarawak state sales tax in 2020F given the lack of updates on the proposal. We also pencil in a long-term LME aluminium spot [price] increment of 2% annually (from 1.5% previously),” he said. 

Global aluminium prices have risen on lower inventory in China, according to news reports.

It was reported that three-month aluminium on the LME rose 0.1% to US$1,919.50 a tonne by 0303 GMT today, having hit its highest since March 2019 on Monday.

"China's social inventories of primary aluminium ingots in eight consumption areas assessed by metals prices provider SMM fell to 635,000 tonnes, their lowest since Jan 16 and compared with 1.68 million tonnes in April,” Reuters reported.

"Shanghai aluminium prices climbed to a near three-year high on Thursday (Nov 12), boosted by a fall in inventories in top consumer China. The most-traded December aluminium contract on the Shanghai Futures Exchange climbed as much as 1.6% to 15,280 yuan (US$2,309.13) a tonne, its highest since Nov 15, 2017,” the newswire reported.

On Bursa today, Press Metal’s share price settled up five sen or 0.84% at 12:30pm at RM6, valuing the group at some RM24.19 billion. The stock saw some 2.66 million shares traded.