报告名称：Chalco(02600.HK)Chalco NDR key takeaways
报告类型：港股研究
报告日期：2016-04-02
研究机构：德意志银行
股票名称：中国铝业
股票代码：ACH,601600,02600
页数：10
简介：Cost control is the key; maintaining Hold on fair valuation
We held the Chalco NDR last week and there are several things to highlightincluding: 1) an aggressive cost reduction target of a 12-15% YoY cut inalumina and a 15-20% YoY cut in aluminum this year; 2) accommodatinganother c.10,000 employees, with lower expenses; and 3) the settlement planwith CPI is still a question mark. With a potential substantial cost reduction(FY16 DBe 10%/12% cut in alumina and aluminum), we expect gross margin toimprove to 5% this year vs. 2% last year. However, without further meaningfulnon-op gains, it is hard for the company to achieve break-even at the bottomline, given hefty interest expenses of RMB5bn+; maintaining Hold on valuation.
Aggressive cost-cutting plan – how low can it be?
Chalco’s aluminum and alumina cash cost was c.RMB10,200/t andRMB1,600/t last year, representing 8% YoY and 12% YoY declines respectively,which means break-even for aluminum and a c.RMB400/t+ cash gain foralumina. Chalco’s CFO, Mr. Zhang, mentioned that it would try to achieve a12-15% YoY unit cost cut in alumina and a 15-20% YoY cut in aluminum thisyear, through raw material cost savings, energy/operation efficiency, labor-costsavings and, of course, lower power tariffs. For example, it settled directlypurchasedelectricity with Guizhou power plants at RMB0.17/kwh, almost halfthe previous level, meaning a total input cost of c.RMB0.27/kwh (power cost +transmission fee + other misc. charges). However, we are not sure whetherChalco can get this discount in other regions as well. Our utility analystMichael Tong has noted that the power supply in Guizhou and Yunnan is inserious oversupply, but the average discount in China is not that much.
Maintaining Hold on fair valuation; risks
Although aluminum price momentum has been well supported by declines inoutput and local inventory, we remain concerned about potential restarts withthe aluminum price approaching RMB12,000/t. Our target price of HKD2.8 isbased on a three-year historical PB of 1.0x and 2016E BVPS. Chalco is nowtrading at 0.9x 2016E DBe BVPS. Maintaining Hold on fair valuation. Risks:better-/worse-than-expected supply discipline and metal prices.

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