Morningstar | Jiangxi Copper’s Strong Results Within Expectations; Upside Capped by Trade War Concerns
No-moat Jiangxi Copper’s cumulative nine-month net profit of CNY 2.0 billion, up 29% year over year, was largely in line with our expectations. The robust results were mainly attributable to higher metal prices.We maintain our fair value estimate of HKD 9.30 (CNY 8.10). We think greater upside is needed versus risks before we would turn buyer given concerns on the trade war between the U.S. and China, which continue to pressure copper prices.
While third-quarter operating data has not been detailed, preventing a deeper analysis, we note that net profit increased by 50% from the previous quarter, despite a quarter-over-quarter fall in copper prices. We think the better performance was due to lower impairment losses and finance costs, higher contribution from trading business, and increased earnings from sales of sulphuric and sulphuric concentrate. In particular, gross margin improved to 3.2% from 3.0% in the second quarter.
Despite the in line results, we remain bearish on the firm’s long-term prospects given our below-consensus copper price forecasts. During the third quarter, average copper prices fell 11% quarter over quarter and copper was trading at around $2.79 per pound as of Oct. 26. We project prices to fall further due to slowing demand growth in China and rising supply as mine restarts and new production comes online. We maintain our long-term 2022 copper price forecast at USD 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.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.