Basic materials stocks turn attractive as valuations sink below historical norms

KUALA LUMPUR: Basic materials stocks are offering attractive buying opportunities as valuations fall below historical averages, said RHB Research.

While the basic material stocks under its coverage are seeing a gradual sell-off from peak levels, the firm said they are now also trading below their mean levels.

RHB Research noted that Press Metal Aluminium Holdings Bhd is trading at 19.9 times its forecast price-to-earnings ratio for financial year 2027, or 1.5 standard deviations below its historical mean, approaching trough levels of 2.5 standard deviations.

Meanwhile, it said Malayan Cement is trading at nine times forecast earnings, its lowest valuation in three years, while TMK Chemical is trading at 15 times forecast earnings, a five-times discount to the KL Production Index.

"We estimate the theoretical share price dilution to be RM2.75 to RM2.85 (against current levels of RM2.69). As such, we view these levels as attractive re-entry points for investors," it said.

RHB Research reiterated its view that aluminium supply in the Middle East would remain structurally tight, following a 43 per cent year-on-year decline in Gulf Cooperation Council (GCC) production in August, which was also 36 per cent below February 2026 levels.

In the cement sector, the firm said Malayan Cement Bhd expected average selling prices to remain broadly stable in financial year 2027, as it maintained its RM20 per tonne rebate.

However, it said higher coal prices could weigh on earnings, with the company having secured coal stocks for October and November 2026 at US$80 to US$90 per tonne, 15 to 38 per cent above financial year 2026 levels.

"Based on our estimates, every US$10 per tonne increase in coal prices could reduce earnings by five to six per cent and lower earnings before interest and tax margin by 130 bps, assuming minimal cost pass-through," it said.

In the chemical sector, RHB Research said TMK Chemical Bhd's proposed RM939.9 million acquisition of Chemical Company of Malaysia Bhd (CCM) would strengthen its earnings growth prospects.

The firm viewed the acquisition as earnings- and earnings-per-share-accretive, estimating an 11 per cent increase in earnings per share.

Overall, the firm maintains an "overweight" call on the sector and names Press Metal and TMK Chemical as its top picks.

"We continue to favour Press Metal due to elevated aluminium prices, while TMK Chemical was expected to benefit from stronger earnings following its proposed acquisition of CCM," it added.