PMETAL: Strong Earnings Driven by Cost Efficiencies, Outlook Positive
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A recent investment bank research report indicates a robust financial performance for the third quarter of 2025, with core profit significantly exceeding expectations. The strong results were primarily attributed to enhanced cost efficiencies and favorable market conditions, underpinning a positive future outlook.
Performance Review
The company’s core profit for the third quarter of 2025 surged by 19% quarter-on-quarter and 25% year-on-year. This brought year-to-date earnings for the first nine months of 2025 to MYR1,544 million, a 10% increase from the previous year. This performance aligns with analyst estimates, representing 72% of the full-year forecast. While revenue experienced a marginal 3% quarter-on-quarter decrease, it still marked an 8% year-on-year growth.
A notable improvement in EBITDA margin to 22.4% in 3Q25 (from 19% in 2Q25 and 18.9% in 9M24) was a key driver. This improvement was largely due to lower alumina prices—which fell below USD400/tonne, representing 15% of LME prices—and successful clearing of high inventory costs. The company also declared a third interim dividend per share of 2 sen, bringing the total for 9M25 to 6 sen, reflecting a 33% payout ratio.
Challenges and Market Dynamics
Despite the strong performance, the company navigated modest demand growth and slightly lower contributions from associates. Global aluminium supply remains tight, supported by subdued global production growth and falling LME and Shanghai aluminium stocks. LME prices reached USD2,804/tonne quarter-to-date, while alumina prices eased to USD320/tonne.
Concerns about potential surplus conditions from China’s expanding production in Indonesia in 2026 and 2027 were noted, though management anticipates potential delays due to power supply limitations. The company expects alumina realized prices to be USD20-30 lower quarter-on-quarter, suggesting a cost ratio of approximately 14%.
Future Outlook and Strategy
The outlook remains positive, underpinned by anticipated tightening aluminium supply. The company has proactively hedged a substantial portion of its future aluminium output: 60% for 2026 at USD2,700-2,750/tonne, 50% for 2027 at USD2,800/tonne, and 30% for 2028 at USD2,800/tonne. For alumina, a partial hedging strategy is in place, with management targeting a cost ratio of 13-15% for FY26F.
Analysts have maintained a recommendation, noting a slight uptick in earnings forecasts for FY25F-27F due to higher smelting revenue. The valuation, based on a DCF model, implies a compelling P/E within its historical average, given the attractive earnings prospects. Potential risks to this positive outlook include significant drops in aluminium prices, global economic slowdowns, a weaker USD, and elevated raw material costs.
