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.