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Jiangxi Copper Alert:Fine tuning earnings after commodity price adjustments

发布时间:2016-07-07    研究机构:德意志银行

Deutsche Bank Global commodity price forecast adjustments

Deutsche Bank’s global commodity team released the newest commodity price forecasts for the third quarter on July 6. Copper price received a cut for both the near-term and long-term as a result of lackluster downstream demand. The 2016/2017/2018 average annual price of copper is predicted to be 4595/4475/5023 USD/t respectively, indicating a change of -0.5%/-5.3%/-3.8% from the previous forecast. As for precious metals, gold received the second largest price increase for 2016 after silver; forecasts were changed by +7.1%/7.8%/2.7% for 2016/2017/2018, respectively.

Jiangxi Copper earnings adjustments

Based on the latest commodity quarterly released by Deutsche Bank’s global commodity team, we changed our earnings forecast for Jiangxi Copper for the next three years. We change our forecasts for Jiangxi Copper’s bottom line by +20.3%/-3.8%/-3.9% for 2016/17/18 respectively. The higher estimate for 2016 is mainly because we factored in Jiangxi Copper’s better-than-expected 1Q16 results as a result of cash management. The lower forecast for 2017/2018 is due to our global commodity team’s copper price forecast changes of -5.3%/-3.8%.

Valuation and risks

Our target price for Jiangxi Copper is RMB7.5, an increase of 0.1RMB from our previous forecast. We base our valuation for JXC on DCF life-of-mine methodology where we assume 9.6% WACC. We adopt 11.7% as cost of equity, implying a risk-free rate of 3.9%, market risk premium of 5.6%, and beta of 1.4. We maintain our Sell rating on JXC on overvaluation. Major risks include higher -than-expected realized copper price, and lower-than-expected production costs.

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