DBS Vickers initiates ‘Buy’ call on Xinren Aluminum; TP 70 cents
Analyst: Eun Young Lee
Well-positioned in the Chinese aluminum industry
Xinren Aluminum a leading non-SOE owned aluminum player in China with:
(i) 275,000 tons capacity for smelting primary aluminum; and
(ii) 50,000 tons capacity for fabricated aluminum products.
The company was profitable in the last three years. Despite the global financial crisis, the company registered profits in 2008, unlike some of its peers in the industry. In 2009, its gross profit and net profit surged by about 93% and 395% yoy.
Xinren Aluminum’s profitability stems from its two cost competitive smelting plants, which were constructed at sites where there are abundant electricity at generally lower tariffs compared to many other sites in China.
Power is a major cost component in the aluminum business and the location of its plants gives it a competitive edge.
Vertical integration and strong consumption growth story
To ride on China’s strong consumption growth, Xinren wants to expand its portfolio of products and increase its fabrication capacity to 150,000 tons p.a. by 3Q2011. Fabricated aluminum is used to produce many consumer goods, ranging from motor vehicles, home appliances to drinks packaging.
Risks: policy changes and volatile aluminum prices.
The analyst initiated coverage on Xinren today with a BUY call and a target price of 70 cents, translating to upside potential of 40% based on its last close price of 50 cents.
Related story: XINREN Stock Still 22% Below IPO, But Jan-Sep Net Profit Up 452%
C&G doubles capacity
From a capacity for 1,800 tons a day at its sole operating plant in the Fujian city of Jinjiang, C&G now has four waste-to-energy plants with a combined capacity of 3,400 tons a day.
It recently completed on schedule the construction of three new waste-to-energy plants out of the 10 BOT projects under its belt.
Another 6 BOT projects are schedule for completion over the next two years.
C&G is one of China’s largest waste-to-energy players and the management expects capacity to be fully utilized.
Related story: C&G: Lively Q&A At Investor Meeting