Morningstar | Jiangxi Copper Announces Disappointing 1H18 Earnings Guidance; Lowering FVE to HKD 9.50. See Updated Analyst Note from 07 Aug 2018
No-moat Jiangxi Copper, or JC, guided that first-half 2018 net profit will increase by 50%-80% to CNY 1.2 billion to CNY 1.5 billion, on the back of rising metal prices. However, this is below our expectation and we will issue an update pending more detailed information from the firm's final results in late August. Meanwhile, we cut our fair value estimate to HKD 9.50 per share (CNY 8.20 per share), from HKD 11.00 (CNY 8.80) after incorporating our latest commodity price deck in the valuation model and taking into account the depreciating renminbi. Our long-term copper price forecasts remain below consensus, and we think JC's share prices in the near term will be capped by concerns around the U.S-China trade war.We continue to forecast 2018 copper prices to average $3.00 per pound. Although averaging $3.14 during the first half of the year, copper prices have dropped more than 10% and sit around $2.80 as of Aug. 3. As new supply ramps up and demand growth in China continues to slow, we expect prices to fall further in 2019 and average $2.70 per pound for the year. Our long-term 2022 copper price forecast is also unchanged at $2.34 per pound (in nominal terms).
Jiangxi Copper is engaged in copper mining, milling, smelting and refining for the production of copper cathodes, copper rods and wires and other related products, including pyrite concentrates, sulphuric acid, and electrolytic gold and silver, and rare metals such as molybdenum; provision of smelting and refining services. Through its subsidiaries, Co. is engaged in trading of sulphuric acid and other chemical products; production and sale of copper materials and precious metal materials, and mining equipment; overseas futures business and related enquiry services and businesses; construction and installation services; and development and sale of construction materials.
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