Thursday 28 Mar 2024
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KUALA LUMPUR (Nov 5): AmInvestment Bank has maintained its "Hold" call on Press Metal Aluminium Holdings Bhd at RM4.80 with an unchanged fair value (FV) of RM3.83 and said the Sarawak State Sales Tax (SST) is likely to hurt the company's earnings going forward.

In a note today, AmInvestment said Press Metal is currently seeking clarification from the state government on the new tax matter.

The research house said the Sarawak state government yesterday proposed a 1% SST on the exports of aluminium products starting from January 2020, as part of its plan to increase state revenue.

AmInvestment said based on its estimates, the new tax will cost Press Metal RM64 million and RM89 million in FY20-21F, eroding FY20-21F net profit forecasts by 6-8% and lowering its FV by about 7% to RM3.54 (based on the same 18x earnings multiple).

The research house also maintained its assumption on aluminium average selling price of US$1,800-US$2,000/tonne for FY19-21F on the back of higher projected production growth of 6-7% versus projected consumption growth of 5% in China in 2019 and alumina price of US$390-US$430/tonne backed by the prevailing supply shortage in global alumina production.

Furthermore, AmInvestment remains cautious on Press Metal as earnings outlook for aluminium smelters globally is still cloudy due to the weak aluminium price and high cost of input alumina, resulting in margin squeeze.

In addition, it said the company's valuations are at a premium versus its global peers which means the upside to its share price may be capped.

"However, this is mitigated by Press Metal's recent signing of a 15-year power purchase agreement (PPA) with Sarawak Energy Bhd for the supply of 500MW of electricity, enabling it to power an additional annual aluminium smelting capacity of 320,000 tonnes," it said.

The research house believed that this will boost Press Metal's overall smelting capacity by 42% to 1.08 million tonnes by 2021 from 760,000 tonnes currently.

At 11.06am, Press Metal shares dropped 11 sen or 2.29% to RM4.69 with a market capitalisation of RM19.38 billion, making it one of the top losers across Bursa Malaysia this morning.

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