Kenanga maintains "Outperform" on Press Metal

China’s government would remove export taxes on bars and rods of primary aluminium and aluminium-alloy from May 1, 2015, according to China daily.

Kenanga Research said this would have a negligible impact on Chinese exports and aluminium premiums in Europe and US in the near term.

It explained that despite the removal of export tax, Chinese aluminium is still less attractive for its pricing compared to international aluminium prices.

“We gather that the 3-year average aluminium price is USD1,900 per tonne while the average Japan premium is USD293 per tone. Thus, all-in international aluminium price is about USD2,190 per tonne, 4.8% cheaper than that of China Shanghai 3-year average of USD2,300 per tonne,” it said.

The research house said that most of China’s production is for its own domestic consumption as the country’s maximum aluminium production was 24,400 tonne which was in par with its consumption of 24,100 tonnes, reflecting minimal exports.

“The export tariff change only applies to a small number of aluminium products which accounted for a mere 14,000 tonnes of exports in 2014,” it added.

Kenanga research is maintaining its outperform call on Press Metals Bhd with a target price of RM5.41, based on financial year 2016 estimate of price to earnings ratio of 15 times with earnings per share of 36.1sen.

It expects the outlook of the company to remain bright as its earnings growth from the new capacity would enhance from January 2016 onwards.

“We also reaffirm our aluminium price assumption at USD1,900 per tonne, as we expect aluminium prices to stabilise in later part of the second half of this year when demand is expected to recover, driven by growing usage of aluminium in the auto sector,” it said.

It noted that that there is a high possibility that the stock would be included in the Shariah-compliant in the upcoming review in the second half of this year.

It added that Press Metal is its top pick due to its industry-leading margins of 16.7% compared to its global average of 12% as well as bright earning outlook boosted by capacity expansion.

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