Results missed on lower alumina sales and higher minority
　　Chalco released its 1Q17 results, reporting NPAT of RMB391m, strong yoygrowth but accounting for only 14% and 13% of 2017 DB and consensusestimates, respectively. We mainly attribute this to its lower alumina salesvolume （30%yoy decline） during 1Q17 and a higher portion of minority. Wethus cut our earnings estimates by 13% for this year and 10% for next year.However, we remain constructive on Chalco as a beneficiary of recent noncompliancecapacity control and seasonal shutdown during heating season.
　　Unit cost on track and external power purchase about to be closed
According to Chalco management, within its RMB9.2bn pre-tax profit, thealumina segment contributed RMB7bn, followed by trading RMB1.5bn andenergy RMB0.7bn. The aluminium segment was almost at breakeven at analuminium price level of RMB13600/t during 1Q17. We expect It to be theother way around in the second quarter, the aluminium segment should be themost profit contributor rather than alumina. Unit costs were RMB1818/t andRMB10600/t for alumina and aluminium, respectively, in line with ourexpectation. Management also mentioned the company is about to close allexternal power purchases once it settles the deal in Liancheng and Zunyi. Thecompany will then have 60-70% floating power cost with a benchmark ofRMB30cents/kwh at an aluminium price of RMB12000/t （earlier, during theannual results meeting, management talked about 33-35cents for RMB13500/t）。
　　New production bases to be ramped up late this year; maintaining Buy
Chalco spent RMB2.2bn capex in the first quarter and management mentionedthe company is about to ramp up most of its new production bases, – BaotouHualei, Guangxi Hualei, Guizhou Huajin and Shanxi Huarun – late this year.With strong volume growth this year and next, and the aluminium price wellsupported by control of illegal capacity and a potential shutdown during theheating season, we view Chalco as a direct beneficiary, and maintain our Buyrating. Chalco is currently trading at 1.3x 2017E BVPS with an average ROE of6%/8% in 2017E/18E; we believe the valuation is undemanding compared toits historical average PB of 1.4x with an average ROE of 5%-plus.