PMETAL: Strong Earnings on Efficiency Gains, Positive Outlook Affirmed
| Key Information | |
|---|---|
| Investment Bank | TA SECURITIES |
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation | |
An investment bank has highlighted an aluminium producer’s strong financial performance, with its latest full-year results meeting expectations, driven by significant cost efficiencies. The firm anticipates another record-breaking year ahead, supported by favorable market dynamics.
Performance Review
The company’s full-year 2025 results were in line with estimates, achieving 100% of the projections. Core profit for the fourth quarter of 2025 notably improved by 5% quarter-on-quarter and a substantial 40% year-on-year. This pushed full-year 2025 earnings to MYR2,194 million, marking a 17% year-on-year increase and falling within 100-104% of both the investment bank’s and Street estimates.
While revenue saw a marginal 1% quarter-on-quarter decrease, it still posted a robust 13% year-on-year growth. A key highlight was the continued improvement in EBITDA margin, which rose to 24.6% in 4Q25 from 23.2% in 3Q25, resulting in a full-year 2025 margin of 20.9% compared to 18.3% in 2024. This margin expansion was primarily attributed to lower alumina prices, which fell below USD400/tonne (14% of LME prices), and effective management in clearing high inventory costs. Alumina prices have eased considerably, dropping to USD300-USD310/tonne from an average of USD650/tonne in January 2025. The group also declared a fourth interim dividend per share of 2 sen, bringing the total FY25 DPS to 8 sen, representing a 31% payout ratio.
Future Outlook and Strategy
The investment bank maintains a positive outlook for 2026, forecasting another record-breaking year for the company. This optimism is underpinned by several factors: a structurally weaker US dollar, robust copper prices (which show a strong correlation with aluminium), and a tightening global aluminium supply situation, reinforced by the confirmed shutdown of a significant plant in Mozambique.
The company has also strategically hedged a substantial portion of its future output: 60% of its 2026 aluminium output at USD2,750-2,800/tonne, 50% of 2027’s at USD2,850-USD2,900/tonne, and 30% of 2028’s around the USD2,900/level. Alumina supply is also partially hedged, targeting a 13-14% ratio for FY26F.
Despite potential headwinds from geopolitical uncertainties that could temper demand, the firm’s robust earnings growth (an expected +27% YoY for FY26F) and its current trading valuation of 22.6x FY26F P/E (within its 3-year average) make it a compelling investment.
Recommendation and Target Price
The investment bank reiterates its BUY recommendation for the stock, with a maintained target price of MYR8.50, representing a 12% upside. This DCF-derived target price, incorporating an 8% ESG premium, implies a 25x FY26F P/E, which is 1.5 standard deviations above the counter’s 3-year mean. Key risks to this outlook include a significant plunge in aluminium prices, an economic shutdown, and elevated raw material costs.
