Aluminum Corp of China - ADR (ACH) announced strong financial results for 2006 mainly due to production increases of primary aluminum products. The company has finished six aluminum acquisitions since March 2006, and three offshore alumina projects are on the right track. Given its overall positive prospects, Zacks senior analyst Paul Cheung, CFA is maintaining a Buy recommendation. Read portions of his latest as report as excerpted below.
Aluminum Corporation of China, Ltd. (Chalco), incorporated as a joint stock limited company in the People's Republic of China in 2001 and headquartered in Beijing, is the main producer of alumina and the largest producer of primary aluminum in terms of production and sales in China. Chinalco, a stateowned enterprise, currently owns 40.46% of Chalco's issued share capital, and it is Chalco's largest shareholder. As of December 31, 2006, the company's assets totaled approximately $10 billion and are expected to continue to grow rapidly.
Chalco announced strong financial results for 2006 mainly due to production increases of primary aluminum products. The company should continue to benefit from strong alumina and aluminum demand in China, as the company has the best balanced value chain of aluminum industry in China. Moreover, it plans to continue to aggressively increase its production capacity. Chalco has finished six aluminum acquisitions since March 2006, and three offshore alumina projects are on the right track. Given its overall positive prospects, we are maintaining our Buy recommendation on Chalco shares.
"Chalco operates with significant scale and has cost economies of scale comparable to China's competitors. It is the second largest producer of alumina and the fourth largest producer of primary aluminum in the world in terms of production and sales. In 2006, Chalco produced 8.83 million tons of alumina products, which equaled 64.5% of all alumina products produced and 46.5% consumed in China. This has made Chalco the second largest producer of alumina in the world. In 2006, Chalco produced over 1.93 million tons of primary aluminum, which was equivalent to 20.6% of China's production and 22.2% of its consumption.
"Chalco expects no serious competition from China's alumina and primary aluminum producers in the immediate future because of the government's entry requirements, the need for a supply of bauxite, and the need for experience and technology in the field. Chalco, which is a major player with extensive experience and improving technology, gets its bauxite from three sources: its own mines, jointly operated mines, and other suppliers. In addition, because of the companys standing in China, it has received preferential treatment in terms of trade barriers (including import tariffs on alumina and primary aluminum products, and quotas and non-tariff barriers for imports of alumina) and electricity prices."
Read the analyst report on ACH