KUALA LUMPUR, Jan 7 (Bernama) -- Bursa Malaysia’s benchmark index rebounded from earlier losses to close at its intraday high on Wednesday, gaining 0.27 per cent in late trading as buying interest returned to selected heavyweights. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) advanced 4.48 points to 1,676.83 from Tuesday’s close of 1,672.35. The benchmark index opened 0.88 of-a-point lower at 1,671.47 and subsequently hit a low of 1,665.94 during the mid-morning session before gaining momentum toward closing. On the broader market, losers led gainers by 565 to 512, while some 526 counters were unchanged, 1,046 untraded, and 10 suspended. Turnover improved to 2.73 billion units worth RM2.76 billion versus Tuesday’s 2.66 billion units worth RM2.76 billion. Dealers said that investors were cautious following geopolitical developments in Asia.
Retain HOLD with a target price (TP) of RM2.62
Press Metal Bhd
(April 19, RM2.79)
Maintain hold with a fair value of RM2.62: The global demand for aluminium is expected to grow modestly at 5% annually from financial year 2017 (FY17) to forecasted FY19 (FY19F), largely attributed to the transportation and construction segments which account for half of the global primary demand, while supply is expected to remain flat at 60 million tonnes. Currently, demand for aluminium stands at 59 million tonnes with supply at 59 million tonnes. The slow supply growth is mainly due to the curb on aluminium production in China where the government has issued a policy draft to cut down production during the winter season.
The curb is to tackle pollution which worsens in winter. Experts reckoned that if the China policy kicks in, they forecast a reduction of 1.3 million tonnes of aluminium production (4% of total production in China).
The positive outlook for aluminium is a boost to Press Metal Bhd’s (PMB) earnings outlook. Earnings is expected to improve by 47%/28%/27% respectively from FY17 to FY19F mainly driven by: (i) Ramped up annual production to full capacity in the fourth quarter of 2016 to 760 million tonnes annually from 705 million tonnes previously, and 120 million tonnes annually downstream at 75% utilisation rate.
We forecast higher average aluminium prices per tonne realised at US$1,785 (RM7,854), US$1,910 and US$2,100, up by 5%/7%/10% for FY17 to FY19F respectively, due to strong demand from the construction and transportation segments globally and the aluminium production cut in China.
(ii) The low production cost, helped by the competitive electricity tariff from hydroelectric power. Cost savings in logistics from the belt conveyer system in the Samalaju Port, which will be ready by the second half of 2017, will give PMB’s savings of US$50 to US$70 per tonne. Together with the low effective corporate tax rate mainly due to tax exemptions from its pioneer status and investment tax incentives, these make PMB the lowest cost aluminium producer in the region. — AmInvestment Bank Research, April 19
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