20131220-招商证券-Metal_and_Mining_2014_Outlook_36页_1mb

Metal and Mining 2014 Outlook Summary

Core Content

This document provides an outlook on the metal and mining industry for 2014, highlighting the bearish sentiment and expectations for declining commodity prices. It outlines two investment themes and makes specific recommendations for companies in the sector.

Main Views and Key Information

Industry Outlook

• Overall Sentiment: The metal and mining industry is viewed as bearish, with most commodity prices expected to fall further from 2013.
• Base Metals: Demand will recover moderately in 2014, but oversupply pressure will continue to drive prices down.
• Precious Metals: Gold prices are expected to decline due to pressure from the Fed's monetary policy changes.
• Minor Metals: Will benefit from China's economic transition.
• Coal: Oversupply persists, and prices are expected to decrease further.

Investment Themes

1. Theme 1: Asset Sales and Strategic Transition

   • Companies are expected to divest non-core assets to improve profitability.
   • Chalco has already started selling assets, including the aluminum fabrication department and Simandou iron projects.
   • Asset sales are expected to bring about significant investment profits.

2. Theme 2: Industry Consolidation

   • The coal industry is expected to see frequent consolidation due to long payback periods and government support.
   • Companies with cost advantages, sufficient cash deposits, and adequate resources are likely to be winners in the M&A landscape.

Company Recommendations

• China Hongqiao (1378 HK): Recommended with a "Buy" rating. It has a cost advantage and high profitability, with its alumina project in Indonesia expected to be completed in 2015.
• Yitai Coal (3948 HK): Also recommended with a "Buy" rating. It is a cost leader and has diversified operations through railway and coal-to-chemical businesses.

Underperformers

• Rusal, Zhaojin Mining, and Zijin Mining: Expected to underperform due to various challenges including supply pressures and weak fundamentals.

Commodity Price Forecasts

Financial Forecasts

China Hongqiao (1378 HK)

• Price: HK$4.78
• Target Price (PT): HK$5.80
• Upside: 21%
• Rating: Buy
• Market Cap (bn): 27
• ROE(%): 24% (2013E), 22% (2014E), 21% (2015E)
• PE: 8.2 (2013E), 7.8 (2014E), 6.5 (2015E)
• PB: 1.7 (2013E), 1.5 (2014E), 1.3 (2015E)
• EPS: 1.46 (2013E), 1.53 (2014E), 1.85 (2015E)
• DPS: 0.40 (2013E), 0.40 (2014E), 0.40 (2015E)

Yitai Coal (3948 HK)

• Price: HK$14.90
• Target Price (PT): HK$25.10
• Upside: 68%
• Rating: Buy
• Market Cap (bn): 48.8
• ROE(%): 33% (2013E), 21% (2014E), 20% (2015E)
• PE: 13.7 (2013E), 12.1 (2014E), 12.1 (2015E)
• PB: 6 (2013E), 5.5 (2014E), 5.5 (2015E)
• EPS: 1.02 (2013E), 0.97 (2014E), 1.11 (2015E)
• DPS: 0.67 (2013E), 0.62 (2014E), 0.40 (2015E)

Conclusion

The metal and mining sector is expected to face continued challenges in 2014, with most commodity prices declining due to oversupply and weak demand. However, companies with strong fundamentals and strategic advantages, such as China Hongqiao and Yitai Coal, are recommended for investment. The industry is also expected to undergo significant consolidation, with those having cost advantages and sufficient cash likely to emerge as winners.