Basic materials stocks turn attractive as valuations sink below historical norms

KUALA LUMPUR: Basic materials stocks are now trading at historically low valuations, presenting appealing buying opportunities, according to RHB Research. Despite a gradual sell-off from their peak levels, these stocks are trading below their long-term averages. Press Metal Aluminium Holdings Bhd is currently priced at 19.9 times its forecast price-to-earnings ratio for 2027, indicating a valuation that is 1.5 standard deviations below its historical average.

Malayan Cement and TMK Chemical are also offering attractive valuations, with the former trading at nine times forecast earnings, the lowest it has been in three years, and the latter at 15 times forecast earnings, a five-times discount to the KL Production Index. RHB Research estimates potential share price dilution of RM2.75 to RM2.85, suggesting these levels as attractive re-entry points for investors.

The firm notes that aluminium supply in the Middle East remains structurally tight, following a 43% year-on-year decline in Gulf Cooperation Council (GCC) production in August, which was also 36% below February 2026 levels. Malayan Cement expects stable average selling prices in 2027, but higher coal prices could negatively impact earnings.

TMK Chemical's proposed acquisition of Chemical Company of Malaysia Bhd is seen as earnings- and earnings-per-share-accretive, potentially increasing earnings per share by 11%. Overall, RHB Research maintains an overweight stance on the sector and identifies Press Metal and TMK Chemical as its top picks.