China's energy crunch spells margin erosion for Press Metal, but Affin Hwang still likes the stock

Asia's Tech News Daily

© Provided by New Straits Times

KUALA LUMPUR: China’s energy problem, which is expected to remain until 2022, should translate to some profit margin erosion in Press Metal Aluminium Holdings Bhd’s earnings, Affin Hwang Capital said.

In a note today, the firm said raw material supply including alumina, carbon anode, magnesium and silicon metal were expected to be under pressure in the coming quarters as China struggled with its electricity shortages, causing disruptions in production. 

It said cement, steel and aluminium production being the most energy-intensive industries were expected to be worst hit from the power crunch. 

“Nevertheless, we believe the rise in raw material prices will be partially passed through to customers, mitigating the impact, while the resulting global supply shortage would translate to elevated aluminium prices for a longer period of time.

“Despite the potential squeeze in margin, we continue to like Press Metal for its strong earnings growth outlook and scarcity premium as it is the only aluminium smelter to be listed in Malaysia and the largest aluminium smelter in Southeast Asia,” it said.

Affin Hwang said Press Metal’s Samalaju Phase 3 plant was operating at 96 per cent capacity and on track for full ramp-up by the end of the year. 

Upon full commissioning, Samalaju Phase 3 plant’s total capacity will expand to 1.08 million tonnes per year, up 42 per cent from the current 760,000 tonnes per year.

Affin Hwang has adjusted Press Metal’s 2021-2023 ernings by 9.5 per cent, -5.9 per cent and -4.3 per cent respectively. 

This was after incorporating higher aluminium prices as a result of the global aluminium shortage, higher raw material costs and lower value added products sales volume mix as a result of potential disruption in magnesium and silicon metal supply. 

Affin Hwang has maintained its “Buy” call on Press Metal with a lower target price of RM8.20 from RM8.70 previously.

© New Straits Times Press (M) Bhd

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