Morningstar | Jiangxi Copper's Preliminary 2018 Results Below Expectations; Shares Overvalued
No-moat Jiangxi Copper guided that 2018 net profit will increase by CNY 802 million year over year to about CNY 2.4 billion. This is below our expectations and we believe could be due to provision for assets impairment, hedging losses, and weaker copper prices. We are keeping our fair value estimate of HKD 9.30 per share (CNY 8.10 per share) for now pending more detailed information from the firm’s final results to be released in late March. We think the shares are overvalued, given our bearish view on long-term copper prices.Management attributed the improvement in full-year net profit to higher volume and prices of major products as well as increased investment income. Nonetheless, we remain bearish on the firm’s long-term prospects, given our below-consensus copper price forecasts. We maintain our long-term 2022 copper price forecast at $2.34 per pound (in nominal terms) on the back of weakening Chinese copper demand versus a current price of around $2.77. We expect Chinese copper demand to see headwinds as real estate activity fades to a level more commensurate with underlying urbanization trends and power spending shifts away from copper-heavy distribution to copper-light transmission.
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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