14 minutes
PETALING JAYA: Press Metal Aluminium Holdings Bhd’s FY20-21 profit is expected to be eroded by 6-8% on Sarawak state government’s proposal to slap 1% state sales tax on the exports of aluminium products from January 2020.
AmResearch estimated that the new tax will cost the group RM64-89 million in FY20-FY21.
However, the research house is keeping the earnings forecasts for now as it believes the company is in the midst of seeking clarification from the state government on the matter.
AmResearch is also maintaining its “hold” call on Press Metal with a fair value of RM3.83 to reflect the group’s favourable cost structure with the bulk of its energy cost (from hydro power) locked in at very competitive rates over the long term.
It has maintained the estimates on aluminium average selling price of US$1,800-$2,000/tonne for FY19–21F on the back of higher projected production growth of 6-7% against a projected consumption growth of 5% in China in 2019.
Meanwhile, alumina price is projected at US$390-$430/tonne backed by the prevailing supply shortage in global alumina production.
AmResearch stated that it remains cautious on Press Metals as the earnings outlook for aluminum smelters globally is still cloudy due to the weak aluminium price and high cost of input alumina, resulting in margin squeeze.
Furthermore, the group’s valuations are at a premium against 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 with Sarawak Energy Bhd for the supply of 500MW of electricity, which enables it power an additional annual aluminium smelting capacity of 320,000 tonnes.”
