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Leading Independent Investment Research

Morningstar, Inc.

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Equity Bottom-Up

Aluminum Corporation Of China / Equity Bottom-Up

No-moat Aluminum Corporation of China, or Chalco, reported 2016 net profit of CNY 402 million, a significant improvement from 2015’s CNY 149 million and was in line with management guidance. Nevertheless, excluding nonrecurring items, the firm still made a core loss of CNY 364 million. On a positive note, Chalco achieved a core net profit of CNY 504 million in the fourth quarter of 2016 due to improving aluminum prices and effective cost control. We have previously assumed in our base-case scenario that Chalco will be loss-making during our explicit five-year forecast period. After raising our near-term estimates for aluminum price and taking into account the company’s cost reduction efforts, we are now expecting the firm to turn profitable.We raise our fair value estimate to HKD 0.93 per share (from HKD 0.80). However, we believe Chalco remains overvalued as our bearish long-term aluminum price forecast remains unchanged.Analyst: Chokwai Lee

No-moat Aluminum Corporation of China, or Chalco, reported 2016 net profit of CNY 402 million, a significant improvement from 2015’s CNY 149 million and was in line with management guidance. Nevertheless, excluding nonrecurring items, the firm still made a core loss of CNY 364 million. On a positive note, Chalco achieved a core net profit of CNY 504 million in the fourth quarter of 2016 due to improving aluminum prices and effective cost control. We have previously assumed in our base-case scenario that Chalco will be loss-making during our explicit five-year forecast period. After raising our near-term estimates for aluminum price and taking into account the company’s cost reduction efforts, we are now expecting the firm to turn profitable.We raise our fair value estimate to HKD 0.93 per share (from HKD 0.80). However, we believe Chalco remains overvalued as our bearish long-term aluminum price forecast remains unchanged.Analyst: Chokwai Lee

Chalco Cutting Costs on All Fronts; Shares Remain Overvalued