Download Industrial Metals: Confined by Uncertainties Gold: A Continual

Research Report · Industry Research · Nonferrous
Nonferrous Industry Monthly · May 2010
Base metals: NEUTRAL (Reiterate)
Gold: OUTPERFORM (Reiterate)
Industrial Metals: Confined by Uncertainties
Gold: A Continual Upbeat Trend
15 Jun 10
Investment Highlights
CSI Research Department
Performance Relative to
Indices
Nonferrous
中标300
有色金属
H股指数
S&P/
H-share
Metals
CITIC300
Index
50
40
30
20
10
0
-10
090601 090806 091021 091228 100312 100521
Source: CSI
 Prices of industrial metals declined, while gold outperformed. (i) Events such as
the sovereign debt crisis in Europe and Greek strike escalated market risk aversion,
with the USD index rising 5.6% MoM in May 10; (ii) gold demand due to risk aversion
was highlighted, with the international spot price for gold hitting a new high of
US$1,249.62/ounce and posting an average MoM growth of 4.9%; (iii) in terms of
industrial metals, apart from tin, the LME price index of other metals fell 10%-plus, and
domestic metal prices also dropped successively, albeit at a slower pace; and (iv)
prices for some minor metals rose and those for some dropped worldwide, and
domestic prices for rare earths began to pull back.
 Benefiting from share prices for minor metals and gold counters, the nonferrous
sector dropped at a slower pace than the broad market. Expectations regarding the
tightening of China’s real estate policies, as well as concerns over uncertainties on rate
hikes and RMB appreciation resulted in a generally weakening A-share market, as
exemplified by the SSE Composite Index’ 7.54% decline (to 2,656 points). All in all, the
nonferrous sector dropped at a slower pace than the broad market in May 10. During
the month, (i) the top 10 in gainers were rare earth, minor metals and gold counters,
with only Zhongfu Industry among the major metals; and (ii) counters of major metals
such as copper, aluminium and lead-zinc were among the top 10 losers.
 Industrial metals: Strong demand and sufficient supply. Jan-Apr 10 statistics
showed that: (i) various metals posted meaningful growth in cumulative output; (ii) as
for semi-finished products, copper and aluminium output hit monthly new highs
repeatedly; and (iii) although downstream automobile, electrical utility and household
appliance industries retained a stable growth in output, aluminium, copper and zinc
inventories at the Shanghai Futures Exchange (SHFE) increased. Inventories for the
respective products rose 66.28%, 65.45% and 71.75% compared with those logged at
end-09 due to continuous increases in metal output and large scale imports in previous
months.
 Gold: A continual upbeat trend. (i) The sovereign debt crisis in European countries
(such as Greece and Portugal) continued to overhang the market, leading to high
uncertainties in the international monetary system and rising risk aversion; (ii) the
expansionary monetary policy of countries following the economic crisis continued to
lend support to inflation expectations, both of which resulted in a continual upbeat
trend of gold price.
 Reiterate NEUTRAL rating for base metals and OUTPERFORM rating for gold. (i)
Despite China’s thriving demand for metal and continually rising metal consumption in
Western countries, soaring inventories and rising output constrained price hikes; and
(ii) the market is still affected by uncertainties from domestic housing policies and the
sovereign debt crisis in European countries. Therefore, we reiterate our NEUTRAL
rating for base metals. Gold prices keep hovering high with an optimistic medium to
long-term outlook. In particular, given rising safe haven demand and expectations for
asset injections of domestic listed companies, we reiterate our OUTPERFORM rating
for gold.
 Risks associated with investing in the sector. (i) Launch of additional policies in the
Mainland to curb real estate prices; (ii) deterioration of sovereign debt crisis in Europe;
(iii) increased inflation expectations; (iv) exit of easy monetary policy by various
countries; and (v) further credit crunch.
Peers’ Comparison – China Nonferrous Sector
PER (x)
Price
Company
(HK$)
Hong Kong - average
PEG (x)
P/B (x)
Yield (%)
RoE (%)
09
10E
11E
09-11E
10E
10E
10E
24
16
12
0.8
1.9
3.9
14
CHALCO (02600.HK)
6.27
NA
16
12
NA
1.3
1.3
8
Zijin Mining (02899.HK)
5.72
21
14
12
0.7
3.3
2.9
28
17
Jiangxi Copper (00358.HK)
14.88
17
10
8
0.4
1.5
1.9
Hunan Non-ferrous Metals (02626.HK)
2.65
NA
32
18
NA
1.8
0.6
6
Zhaojin Mining (01818.HK)
16.72
28
21
19
1.4
4.0
2.1
21
13
CMOC (03993.HK)
4.59
40
12
10
0.4
1.5
3.2
Xinxin Mining (03833.HK)
3.70
31
15
11
0.5
1.3
2.4
9
Lingbao Gold (03330.HK)
2.77
8
7
7
1.3
0.8
16.5
14
Source: Respective companies, Bloomberg, CSI
*Based on closing as of 14 Jun 2010
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Investment rating system
Performance of stock or sector relative to MSCI-China Index over next 6 months after research publications
Rating
Stock rating
Sector rating
地址：
Remark
Buy
Relative performance over MSCI-China Index >20%
Overweight
Relative performance over MSCI-China Index 5% ~ 20%
Hold
Relative performance over MSCI-China Index -10% ~ 5%
Sell
Relative performance over MSCI-China Index > -10%
NR
Not rated
Outperform
Relative performance over MSCI-China Index >10%
Neutral
Relative performance over MSCI-China Index -10% ~10%
Underperform
Relative performance over MSCI-China Index > -10%
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