This article first appeared in The Edge Malaysia Weekly, on May 9 - 15, 2016.

SHARES of Press Metal Bhd rose 4.4% to RM3.07 after the company announced stellar results for the first quarter of the financial year ending Dec 31, 2016 (1QFY2016), last Tuesday.

Net profit leaped 119.2% year on year to RM94.6 million, thanks to the receipt of a RM40 million second interim insurance claim. Excluding the one-off item, net profit still increased a commendable 26.5% to RM54.6 million.

Revenue was up 22.2% to RM1.3 billion on the back of the progressive commissioning of its smelters in Samalaju, Sarawak, as well as lower finance costs. The company declared a three sen interim dividend, which goes “ex” on May 16.

Like all other major commodity producers, Press Metal had a difficult 2015. It incurred foreign exchange losses of RM71.6 million on its US dollar-denominated loans and a RM50.3 million write-off charge due to a fire incident at its Samalaju smelter plant. The aluminium company, however, made a comeback recently with its share price up 47.9% year to date following a recovery in aluminium prices in late January.

The rebound in commodity prices could not have been timelier. The affected smelter plant resumed production in November last year while Press Metal’s third smelter plant will be fully operational by 2Q2016. The combination of higher aluminium prices and the capacity expansion could improve its bottom line substantially in FY2016.

Indeed, analysts are now more bullish about the company. Last week, RHB Research raised its target price to RM4.50 from RM3.56, while Kenanga Research increased its target price to RM3.65 from RM2.94. This works out to an average of RM4.08, with an upside potential of 32.7%.

RHB Research analyst Ng Sem Guan, who has closely tracked the stock since 2013, says in a recent note that Press Metal — with its production costs in the first quartile of the global cost curve — is all set to post record earnings. According to Bloomberg, the counter currently trades at a trailing price-earnings ratio (PER) of 21.2 times and forward PER of 12.3 times.

Investors who intend to ride the earnings wave can consider its warrant, PMETAL-WC, which has a one-to-one conversion ratio and RM1.10 strike price. At RM1.89, the derivative was trading at a 2.6% discount to the underlying securities, which closed at RM3.07, last Wednesday.

Issued in 2011 with rights shares, the warrant will expire on Aug 22, 2019. It bounced back from a 52-week low of 70.5 sen on Aug 24 last year and has risen 71.8% this year.

If Press Metal rises 32.9% to reach the average target price of RM4.08, PMETAL-WC should theoretically be worth 57.7% more at RM2.98, assuming zero premium to the mother share. 

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