PMETAL: BENEFITING FROM ALUMINUM PRICE RECOVERY

Results Update

For QE30/6/2020, PMetal's net profit declined by 12% q-o-q or 12% y-o-y to RM90 million while revenue declined by 5% q-o-q or 19% y-o-y to RM1.73 billion.  Profits dropped y-o-y mainly due to the weakening of aluminium price during the current year quarter under review as Covid-19 became a pandemic. In addition, operations at our extrusion and wire rods plants were halted from 18 March 2020 following the nationwide Movement Control Order (MCO). Both plants have since resumed operations by stages from mid-May 2020.

Table: PMetal's last 8 quarterly results


Graph: PMetal's 51 quarterly results

Financial Position

As at 30/6/2020, PMetal's financial position is deemed manageable with current ratio at 1.45 times and total liabilities to total equity at 1.53 times.

Business Expansion

PMetal's new Samalaju Phase 3 is expected to begin operation in early 2021. This will increase PMetals' installed capacity by 42% to 1.08 million MT. 

Aluminum Outlook

Aluminum prices have recovered substantially from its low of USD1450 in May to the current price of USD1780. Aluminum prices have shown a tendency to move in steady trend more than 1 year, and the trend has in the past begun with 10-week SMA line cut above/below the 40-week SMA line as well as the MACD going above/below the zero line. In the last 1-2 weeks, we saw aluminum price exhibiting positive signals, which could be the start of a bullish price trend. 


Chart 1: Aluminium's weekly chart from 2014 to 18 Aug 2020 (Source: Investing.com)

Valuation

PMetal (closed at RM5.04 at end of morning session today) is now trading at a PER of 46 times (based on last 4 quarters' EPS of 11.04 sen). Based on this PER, PMetal is deemed fully valued.

Technical Outlook

PMetal has been drifting lower for the past 2.5 years. A downtrend line, SS can be drawn which has capped the upward movement of the share price. If PMetal can break above the downtrend line at RM5.05-5.10, the share price may go into an uptrend. 


Chart 2: PMetal's weekly chart as at Aug 19, 2020 (Source: Malaysiastock.biz)

I've appended below PMetal share price chart above the aluminum price chart to show the close correlation below the 2 price charts.

Chart 3: PMetal and aluminum's weekly chart from 2014 to August 2020 

Conclusion

Despite the weaker financial performance, full valuation and mildly bearish technical outlook, PMetal is a stock worth considering for long-term investment if aluminum prices were to continue to go higher.  

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

PMETAL: What's Up?

Yesterday PMetal broke above the horizontal line at RM5.00. This bullish breakout could send the share price higher to challenge the horizontal lines at RM5.20 or RM5.35 or even the all-time high at RM5.75. What could possibly explain the surge in the share price for PMetal?

Chart 1: PMETAL's daily chart as at Oct 4, 2018 (Source: Malaysiastock.biz)

For answer, you have to look at the price of aluminium. This metal surged on October 3 to a high of USD 2237. Yesterday, it went up further to an intraday high of USD2266 before correcting back to close at USD2170. The chart shows that aluminum has tested the line connecting the peaks for the past 9 months and corrected back. I believe the metal is likely to continue to correct for the next few days or weeks.


Chart 2: Aluminum daily chart as at Oct 4, 2018 (Source: Investing.com)

Based on the above, I believe that it is a good time to take some profit on PMETAL as well as other aluminium stocks (especially ALCOM). Good luck!

PMetal: Down due to Weaker Aluminium Prices

PMetal dropped 35 sen to RM4.75 as at 10.00am. The sharp drop in PMetal followed equally sharp decline in aluminium prices overnight after the US Government eased sanction on Rusal, the Russian company that's a big exporter of aluminium (here).

Chart 1: PMetal's daily chart as at April 24, 2018_9.30am (Source: Shareinvestor.com)


Chart 2: Aluminium's daily chart as at April 23, 2018 (Source: investing.com)

With the removal of this positive stimulant to the share price of PMetal, it is likely that the latter will revert to the prior downtrend. If that's the case, PMetal is likely to drift down to the horizontal line at RM4.50 or the psychological RM4.00 mark or the recent low of RM3.80. In view of this, you should be careful in trading this stock in the short-term.

PMETAL: A Strong Rebound

Yesterday, PMETAL rallied strongly to close at RM4.38. The rally continues today as PMETAL broke above its intermediate downtrend line, RR at RM4.40. It went to a high of RM4.78. The next resistance will be the horizontal line at RM4.85. If it can surpass this level, it may go to RM5.00 or even RM5.25. What caused the strong rebound in PMETAL?

Chart 1: PMETAL's daily chart as at April 9, 2018 (Source: Malaysiastock.biz)

The answer is the sharp rally in the price of aluminium, as shown by the charts below. Aluminium may face resistance at the violated uptrend line, S1-S1 at USD2150.


Chart 2: Aluminium's daily chart as at April 9, 2018 (Source: Investing.com)


Chart 3: Aluminium's daily chart as at April 9, 2018 (Source: Investing.com)

The reason for the sharp rally in aluminium is due to the sanction imposed by the US government on Russian oligarchs for Kremlin's interference in US 2016 Presidential election and aggression in Crimea, Ukraine and Syria (here). The hardest hit is Rusal, a large aluminium exporter from Russia which is controlled by Deripaksa (here).

I think the benefit accruing to PMETAL is likely to be short-lived as commodity prices have a way of finding their equilibrium after a short interval. Unaffected producers may enjoy slightly better pricing term while affected producers will suffer a small disadvantage but not a total loss. Based on this, I believe the rally for PMETAL may run out of steam soon. We will have to wait & see.

PMetal: Downtrend Has Begun

Today PMetal finally succumbed to the selling pressure and crashed thru the recent low of RM4.73. It came within a hair's breadth of touching its 200-day SMA line at RM4.23. its intr-day low was RM4.29. Despite the rebound, PMetal is likely to commence on its downtrend. Thus, this stock is likely to under-perform the market.

Chart 1: PMETAL's daily chart as at Mar 29, 2018_4.15pm (Source: Malaysiastock.biz)

The likely reason for the technical breakdown in the share price is the weakness in the prices of aluminium. From the chart below, we can see that aluminium has broken its accelearted uptrend line at USD2100/mt.


Chart 2: Aluminium's weekly chart as at Mar 28, 2018 (Source: investing.com)

Alumimium Stocks Looking Toppish (updated)

Aluminium stocks, such as PMetal, LBAlum, Tongher & Arank, have rallied strongly over the past 1 & 1/2 years.


Chart 1: PMetal & LBAlum's monthly chart as at as at Jun 16, 2017 (Source: ShareInvestor.com)


Chart 2: Tongher & Arank's monthly chart as at as at Jun 16, 2017 (Source: ShareInvestor.com)
 
When you pair aluminium price chart with individual stock price chart, you can see that the stock prices have rallied upward on the back of improvement in the metal price, and vice versa.


Chart 3: Aluminium & PMetal's chart as at Jun 16, 2017 (Source: Investing. com & ShareInvestor.com)


Chart 4: Aluminium & LBAlum's chart as at Jun 16, 2017 (Source: Investing. com & ShareInvestor.com)
 

Chart 5: Aluminium & Tongher's chart as at Jun 16, 2017 (Source: Investing. com & ShareInvestor.com)


Chart 6: Aluminium & Arank's chart as at Jun 16, 2017 (Source: Investing. com & ShareInvestor.com)

The reason why share prices of these aluminium companies have been rising is because their profits have risen in line with the price of aluminium. What may happen when aluminium price starts to come off?


 
Chart 7: Aluminium price & Aluminium Companies' Profits from 2010-2017 (Source: Investing. com)

If you study the aluminium price chart, you can see that aluminium prices could have make a top- especially after it touched the line, AB which has capped the price rallies in the past 5 & 1/2 years. The indicators are leaning towards a bearish outlook for aluminium:

• MACD has hooked down
• +DMI is dropping; -DMI is rising; and, the ADX is declining
• Stochastic RSI is now in oversold territory, and may remain here for a while if prices should trend lower in a downtrend.

Chart 8: Aluminium's weekly chart as at Jun 16, 2017 (Source: Investing. com)

Based on the above negative technical outlook for aluminium, I believe you should avoid aluminium stocks or take profit if you have position in aluminium stocks.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.