Aluminum Corporation of China Ltd. or Chalco (ACH) expects to benefit from the long-term growth of the Chinese economy as well as through capacity expansion, acquisitions and joint ventures. However, higher raw material and power costs, along with potential overcapacity force us to rate the shares a Hold with a target price of $20.
Chalco expects no serious competition from China's alumina and primary aluminum producers in the immediate future because of the government s entry requirements in the industry, the need for a supply of bauxite, and the need for experience and technology in the field.
The company is expanding its business through acquisitions and joint ventures. In 2008, it acquired controlling interests in five aluminum fabrication enterprises. The company is also entering new areas of business. It is buying mining operations all over the world to satisfy the strong domestic demand for metal products in China such as copper. In 2007, it bought copper deposits in Morococha, Peru for $3 billion.
In August, the price of coal increased 76% year-over-year. In addition, the Chinese government has increased the power tariff twice in the first eight months of 2008 5.5% in June 2008 and 5.7% in August 2008. Production has dropped 5% 10% in summer due to power shortages. This has hurt profitability of the company in 2008-first half.
Read the full analyst report on ACH
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