We see short-term support for copper prices from Indonesia’s newexport policy, which echoes our supply deficit scenario for2018.
　　In anticipation of higher realised selling prices, we expect JiangxiCopper’s earnings to recover strongly from 2017 onwards.
　　Without changing forecasts, we maintain our price target ofHKD15.0, representing 1.0x FY17E PBR with 27.5% upside potential.
　　Maintain BUY.
　　Indonesia’s new export policy to support copper prices. WhileFreeport-McMoRan has temporarily halted Indonesian shipments ofcopper concentrate under the new regulations, we see near-termsupport on copper prices. We reiterate that the diminishing numberof new project commencement due to the postponement ofcapex-intensive projects would continue to reduce supply; though, onthe other hand, we foresee consumption growth to become moreresilient, as well as solid power investments and more buoyantair-conditioner production growth going forward, while ambitiousinfrastructure spending remains in the cards for the U.S., echoing oursupply deficit scenario for 2018.
　　Copper prices heading for USD7,000/ton in near term. We expectglobal new copper supply has continued to decline on a yearly basisin 2016, although the market is still awaiting for the full-year auditedfigure. According to our estimates, the company’s cost margins havebeen squeezed to the mid-teen levels, significantly lower ascompared to the rolling 3-year average level of about 40%, andexpect an increasing cessation of mining operations. If capital costsare included as an expense item in industry cash costs, it is estimatedthat the incentive price for most of the pipeline greenfield projectswould require almost USD7,000/ton.
　　Ample earnings recovery potential. We believe Jiangxi Copper’searnings would continue to pick up in 2017. Apart from copper, thegradual price recovery in gold and sulphuric products, coupled withthe potential upward pressure on the processing fees for downstreamfabricating customers would lead to further earnings upgradeopportunities. While Jiangxi Copper is well-capitalised for potentialM&As, we assume there is room for inorganic growth opportunitiesgoing forward.
　　Attractive valuation; maintain BUY. Jiangxi Copper is currently tradingat 0.8x FY17E PBR, which is undemanding relative to its historicalaverage of 1.1x PBR between 2011 and 2016 and the global peers’
　　average of 1.5x. Our price target of HKD15.0, which implies potentialupside of 27.5%, represents merely 1.0x FY17E PBR. Maintain BUY.