德意志银行--中国有色金属行业研究报告2008

2371

收藏 2008-04-27

China Nonferrous Metals Value emerging, good time to accumulate Julian Zhu Research Analyst (852) 2203 6207 <a href="mailto:julian.zhu@db.com">julian.zhu@db.com</a> J Clarke Research Analyst (852) 2203 6371 <a href="mailto:j.clarke@db.com">j.clarke@db.com</a> A picture too gloomy The current share prices of Chinese metals names imply that metal prices are to fall 20%-45% from DB's FY08 forecast. We don't believe this will happen. Following a 40%-60% correction from recent peaks, Chinese metals companies are not only trading at historical lows but also at a huge discount to their global peers. We find this hard to justify on an industry average earnings CAGR of 35% during 2007-09F. We see attractive value emerging and recommend investors accumulate Chinese nonferrous metals names. Zijin remains our top pick. All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research is available to customers of DBSI in the United States at no cost. Customers can access this IR at <a href="http://gm.db.com">http://gm.db.com</a>, or call 1-877-208-6300 to request that a copy of the IR be sent to them. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1 Industry Strategy Top picks Zijin Group. (2899.HK),HKD7.84 Buy Hunan Nonferrous (2626.HK),HKD3.15 Buy China Moly (3993.HK),HKD8.50 Buy Jiangxi Copper (0358.HK),HKD15.74 Buy Global Markets Research Company Strong metal pricing suggests sustained robust earnings growth Despite the massive correction of equities, the LME metal prices have performed well ytd, further confirming that the sell-off of metal equities is not justified. YTD, nonferrous metals on LME have gained 8%-15% on a robust demand from emerging markets including China, and the weaker US dollar. We believe strong metal prices will translate into strong FY08 earnings for Chinese metal companies. Target prices cut on higher cost of equity We have incorporated a higher cost of equity into our DCF models for the Chinese metal companies. Based on this, coupled with company-specific issues, we have cut our target price for Zijin Mining (2899 HK, Buy) to HK$10.0 (from HK$17.0); for Hunan Nonferrous Metals (2626 HK, Buy) to HK$4.20 (from HK$5.20), for China Moly (3993 HK, Buy) to HK$11.50 (from HK$18.0) and for Jiangxi Copper (358 HK, Buy) to HK$20.0 (from HK$25.0). We have also upgraded Hunan Nonferrous Metals to Buy from Sell on attractive valuations. We stay overweight on the Chinese nonferrous metals space. Zijin Mining remains our top pick. (Valuation details on company pages in this note). DCF-based target prices; economic slowdown risk to pricing outlook We use DCF to derive target prices for Chinese nonferrous metal companies. Our discount rate is calculated on a company-specific WACC, which is based on the CAPM using DB estimates for the China equity risk premium of 5.3%, a risk-free rate of 4.9% and a company-specific beta for each stock. Key risks to our positive view on the Chinese nonferrous metal sector include: 1) a dramatic slowdown of global and Chinese economy, which will have a significant negative impact on the metals pricing outlook; 2) production interruptions as a result of power shortage in China (as we have just experienced in 1Q08) and lack of enough raw materials; 3) a substantial rise in raw material prices due to rising inflation and global mining bottlenecks. The sharp rise in raw material prices will likely result in a margins squeeze for some Chinese metal companies such as Jiangxi Copper and HNC, which source most of their respective raw materials from the international market. (Risks details on company pages in this note.)Table of Contents What’s in the price?........................................................................... 3 De-risking overdone..................................................................................................................3 Current equities prices imply too bearish a case for metals prices...........................................4 Value emerging.................................................................................. 5 The trough valuations................................................................................................................5 Trading discount to global average suggests good time to buy ...............................................6 Strong profitability and core earnings .......................................................................................6 Metal prices still strong .................................................................... 8 Gold: new highs in the pipeline.................................................................................................8 Copper: expecting further strength in 2Q08 .............................................................................8 Aluminum: the best performer ytd............................................................................................9 Lower TPs, stay Overweight........................................................... 12 Target prices cut on higher COE.............................................................................................12 Zijin Mining: still our top Chinese metals play.........................................................................13 FY07: another strong year............................................................... 16 Strong FY07 results.................................................................................................................16 Remarkable profitability ..........................................................................................................17 Ongoing metal reserves increase ...........................................................................................17 Rising production in FY08 .......................................................................................................17 Lower target price on higher COE; Buy......................................... 18 Target price cut on higher COE and removal of acquisition premium.....................................18 DCF-based target price of HK$10.0; Buy ................................................................................18 Zijin band charts......................................................................................................................20 Risks ......................................................................................................................................20 Negatives already in price .............................................................. 23 Upgrade to Buy on valuations .................................................................................................23 TP cut on higher COE, but upgrade to Buy .............................................................................24 DCF-based target price of HK$4.20; Buy ................................................................................24 Don’t forget organic growth........................................................... 29 No acquisitions, no good?.......................................................................................................29 Stronger moly pricing in FY08 .................................................................................................29 FY07 results review ......................................................................... 30 Strong earnings, but below market expectations on higher cost............................................30 Moving to high value products ...............................................................................................30 Lower TP, maintain Buy.................................................................. 32 Lower target price on higher COE ..........................................................................................32 DCF-based target price of HK$11.5, Buy ................................................................................32 Copper: expecting further strength ............................................... 36 Copper price likely to reach new high in 2Q08 .......................................................................36 Supply: production interruptions to persist .............................................................................36 Demand: no slowdown in sight ..............................................................................................37 Lower TP, maintain Buy.................................................................. 39 Lower target price on higher COE ..........................................................................................39 DCF-based target price of HK$20.0, Buy ................................................................................39