1Q17 NPAT beat DB and consensus estimates; maintain Hold on valuation
Jiangxi Copper released 1Q17 results with revenue of RMB44.7b, representing15% YoY increase and 28% QoQ decrease and accounting for 19% and 21% ofDB and consensus estimate, respectively. 1Q17 NPAT was RMB541m,achieving 30% and 27% of DB and consensus estimate for the whole year2017, respectively). Thecompany is currently trading at 21x/20x 2017/18DBe EPS and 0.8x2017/18DBe BVPS. With c.4% ROE in both years, we believe it is fairly valued,and thus maintain our Hold rating.
Gross profit margin higher than expected
JXC’s GPM in 1Q17 was 3.7%, beating 2017 DB and consensus estimate by0.8ppt and 0.9ppt, respectively. Our 2017 full year copper price forecast isabout US$5,900/t, which is generally in line with that in 1Q17, indicating alower unit cost or better ASP realization during the quarter. We will need to getmore clarification from the company on this.
Maintain Hold on current valuation; risks
Our target price of HKD12.7 for JXC is based on DCF life-of-mine and a WACCof 9.6%. We adopt a cost of equity at 11.7%, implying a risk-free rate of 3.9%,market premium of 5.6% and beta of 1.4. The stock is currently trading at21x/22x 2017/18DBe EPS, and 0.8x 2017/18DBe BVPS. With c.5% upside inshares, we thus maintain our Hold rating. Risks include higher/lower-thanexpectedrealized copper price, and higher/lower-than-expected mined copperunit cost.