• Still OVERWEIGHT; Top Picks: Press Metal (PMAH), Malayan Cement(LMC). Out of the three companies that reported results, one exceededexpectations, while two fell below estimates. We are optimistic on thealuminium market, given the low inventory levels, increasing EV adoption,and China's economic upswing in 2H24F. Our confidence on the cementindustry stems from its alignment with the construction sector and anticipatedsustained demand, fuelled by major domestic infrastructure projects.

• Aluminium. PMAH’s 9M23 core earnings of MYR877.3m fell below our andStreet’s expectations at 58% and 67% of full-year estimates. The YoYdecline in quarterly earnings was attributed to a flattish-to-softer drop in LMEaluminium prices – averaging at USD2,159/tonne (-4.6% QoQ; -8.4% YoY).Despite an 8.5% QoQ decline in revenue, core PATAMI remained stable,partially aided by lower input costs, stronger associate contributions, andimproved sales volumes of value-added products. In addition to thestabilisation of LME aluminium prices, we expect PMAH to enjoy furthersavings in raw material costs moving forward due to its lag effect.

• Global aluminium updates and outlook. Global aluminium productionsurged c.4% QoQ in 3Q23 as smelters in China’s Yunnan province resumedproduction. As the drought season approaches for the province, aluminiumproduction capacities are expected to be curtailed by 9-40%, totallingc.1.16m MT pa. European smelters have not yet widely resumed operationsfollowing the easing of power prices. These production cutbacks, combinedwith rising demand from the green sector, are expected to keep inventorylevels low. Also, supply reductions due to a shortage of hydropower couldposition China to absorb the world’s surplus, particularly in green aluminium.

• Cement. Among the two cement players under our coverage, LMC surprisedStreet with its quarterly performance, while Cahya Mata Sarawak (CMS) fellshort of expectations. LMC’s 1QFY24 earnings of MYR88.5m were at 49%and 43% of our and consensus’ full-year forecasts. Revenue grew 13.6%QoQ and 33.7% YoY to MYR1.15bn, driven by a spike in sales volumes andASPs for both domestic cement and ready-mixed concrete. Cement andready-mixed concrete volumes rose 15% QoQ and 18% YoY. In contrast,CMS’ 9M23 earnings of MYR69.9m were at only 62% and 50% of our andStreet’s full-year projections. The weaker-than-expected results were due towidening losses in the phosphates division and weaker contribution fromroad maintenance, property development, and strategic investments.

• Cement demand still resilient. Bulk cement prices stood at MYR380/MTas of November, maintaining the steady YTD average ASP of MYR380/MT.Our unwavering confidence in the cement industry is rooted in its inherentsynergies with the construction and property sectors. We reaffirm ourconviction that cement demand will flourish in the medium-to-long term,fueled by the launch of major infrastructure projects in Malaysia.

• Risks: Decline in LME aluminium prices, decelerating global economicgrowth, higher-than-expected raw material costs, lower-than-expectedcement ASPs, and lower-than-expected cement production.

Source: RHB Securities Research - 14 Dec 2023