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Chalco
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WHAT THE BROKER SAYS

Chalco

Macquarie has raised its net income forecasts for aluminium giant Chalco by 13 per cent to 13.1 billion yuan this year and by 2 per cent to 9.7 billion yuan next year to reflect expected increases in aluminium prices.

It has raised the share price target to $9.15 based on Chalco trading at 8 times the estimated 2006 price/earnings ratio. The counter closed on Friday at $7.25.

The broker says it has increased its forecast for international spot market alumina prices by 10 per cent to US$560 per tonne this year and by 13 per cent to US$450 per tonne in 2007, and for aluminium by 14 per cent 120 US cents per pound in 2006 and by 5 per cent to 105 US cents per pound in 2007. Driving the prices will be a rebound in global demand in 2006, supply disruptions and low inventories.

It expects Chalco to achieve growth in earnings per share of 77 per cent year on year in 2006, which is 45 per cent above consensus.

Although the strong performance means that Chalco shares are no longer trading at rock-bottom prices, the company remains cheap compared with global peers and well within its historical trading range. The broker maintains its 'outperform' rating.

It sees share-price catalysts as further alumina and aluminium prices rises, acquisitions and expansion of capacity, and higher dividends, and continued growth in demand in China.

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