not vested
Press Metal – BUY
Riding on the favourable structural catalysts of:
a) strong demand from China (which is in its recovery phase);
b) shortages of aluminium supply; and
c) preference for low carbon and greener aluminium, Press Metal is in a sweet spot to reap the positive spillover of stronger aluminium prices.
With P3 Samalaju plant’s expected completion in 3Q21, we believe the additional 28%
smelting capacity and our aluminium spot price assumption of US$2,100 for 2021 could lead to earnings growth of 270% in 2021.
As Press Metal (using mostly hydraulic power as an energy source instead of coal power) is also registering its product under the green aluminium category, we believe such practice could result in Press Metal becoming the preferred environmental, social and corporate governance investing target.
Share Price Catalyst
The spot price has continued to rise to around US$2,500/tonne, well ahead of our spot price assumptions of US$2,100 and US$2,250/tonne for 2021 and 2022 respectively.
Should aluminium prices continue to rise, based on our sensitivity analysis, every
US$100/tonne increase to our spot aluminium price assumption of US$2,250/tonne in 2022 would boost Press Metal’s earnings by 20% annually, assuming alumina cost of US$360/mt (implying about a 15% cost ratio) and carbon anode prices of Rmb4,230/mt.
Source: UOBKH