Supply-chain constraints during the Covid-19 pandemic have resulted in an uneven impact on companies. Press Metal Aluminium Holdings Bhd, the largest aluminium smelter in Southeast Asia by capacity, was one of the standout winners during the pandemic as supply constraints and dwindling inventories boosted aluminium prices.
In 2021, the group achieved a record net profit of RM1 billion, crossing the mark for the first time despite facing various challenges from the continuing effects of the pandemic and lockdowns during the year. And it shows no signs of slowing as aluminium prices, which gained almost 40% in 2021, are expected to remain elevated.
Press Metal’s smelting segment is the main driver of its turnover and profitability, with aluminium prices on the London Metal Exchange playing a vital role in determining the group’s bottom line, according to the group’s 2021 annual report.
The group’s net profit fell from RM619 million in the financial year ended Dec 31, 2018 (FY2018) to RM474 million in FY2019 and RM460 million in FY2020 before surging to RM1 billion in FY2021, on higher average aluminium prices during the year and increased production output from its Phase 3 Samalaju smelter (P3) in Bintulu, Sarawak, which achieved full commissioning in October 2021.
Net profit for the six months ended June 30, 2022 (1HFY2022) surged 80% to RM830.19 million from RM461.3 million a year earlier, on higher metal prices and production volume during the period.
A strong US dollar benefits Press Metal as its smelting revenue and purchases are substantially linked to the greenback. According to RHB Research, every 1% increase in the US dollar should potentially lift its FY2023 forecast earnings by 2%. The ringgit had fallen 14% against the US dollar over the past year to close at 4.74 on Oct 24.
For the second consecutive year, Press Metal took home The Edge Billion Ringgit Club Corporate Award for the highest returns to shareholders over three years for companies with a market capitalisation of above RM40 billion. This year, it also won the award for the highest return on equity (ROE) over three years.
Its adjusted weighted three-year ROE was 19.1% for the period in review, according to The Edge BRC’s award methodology, having jumped to 25.5% in 2021 after slipping from 13.7% in 2019 to 12% in 2020. In an Oct 14 report, RHB Research estimated that Press Metal’s ROE could increase further to 40.5% in FY2022.
Over the BRC period in review between March 29, 2019, and March 31, 2022, its total shareholder return of 0.8% does not look as impressive but it is still the best among companies with a market capitalisation above RM40 billion.
Press Metal’s share price gained a solid 183% during the period in review, from RM2.19 (March 29, 2019) to RM6.20 (March 31, 2022). After peaking at RM7.22 on March 3 this year, the stock fell 40% to close at RM4.32 on Oct 27 — wiping RM23.9 billion off the company’s market value. At the closing price of RM4.32, its market cap stood at RM35.6 billion.
The group rewarded shareholders with a total dividend payout of 3.4 sen per share in FY2021, up from 2.1 sen in FY2020. It also rewarded shareholders with bonus shares, with a one-for-one bonus issue in April 2021.
For this financial year, Press Metal has so far announced two interim dividends amounting to 3.25 sen per share, an increase from 1.75 sen declared in the previous corresponding period.
In announcing Press Metal’s 1HFY2022 results on Aug 25, co-founder and group CEO Tan Sri Paul Koon Poh Keong noted that macroeconomic uncertainty and inflationary pressures are causing a slowdown in demand momentum as consumers adopt a more cautious approach over the short term.
“However, aluminium market fundamentals should be able to sustain any aggressive challenges as soaring energy prices and power shortages are putting supply in check, especially in Europe. Several smelters have reported production curtailments or shutdowns in Europe and the US, pressured by a margin squeeze at the current aluminium price level due to escalating production costs,” he said.
“In Asia, the extreme weather experienced by India and China is another supply risk for primary capacity as governments seek to prioritise the supply of electricity to households. For the remainder of the year, in addition to improving production efficiency, the group will continue to take advantage of the pockets of growth in various markets in the region.”
Koon was the single largest shareholder of Press Metal at end-March, with a direct stake of 3.39% and an indirect stake of 35.03% through his spouse Puan Sri Khoo Ee Pheng (0.27% direct stake) and their private vehicle Alpha Milestone Sdn Bhd (34.75% direct stake).
At end-June, Press Metal had deposits, cash and bank balances of RM866.41 million and borrowings totalling RM5.67 billion. In March, the group completed a private placement of 163.4 million new shares at RM5.94 each, and raised RM970.59 million to repay its borrowings and for the group’s extrusion operations.