KGI: China Molybdenum Co Ltd (3993 HK) – Reignite the fire
alanyeo
BUY Entry – 4.5 Target – 5.5 Stop Loss – 4.0
China Molybdenum Co., Ltd. is a China-based company, principally engaged in the mining, smelting, processing and trading of metals, such as molybdenum, tungsten and copper. The Company operates its businesses through five segments. Its Molybdenum, Tungsten and Related Products segment is mainly engaged in the mining of molybdenum and tungsten. Its Copper, Gold and Related Products segment is mainly engaged in the mining of copper and gold. The Niobium and Related Products segment is engaged in niobium manufacturing business. The Phosphorus segment is engaged in phosphate manufacturing business. The Copper and Cobalt segment is engaged in the production of Copper and Cobalt. The Company conducts its businesses mainly in China, Australia, Brazil and Congo.
Basic metals’ new year rally. Aluminum reached a new record high of US$3,313/tonne. Copper broke out of consolidation and reached a high of US$783/tonne since October 2021. Iron ore continued the uptrend and reached a high of US$151/tonne since September 2021. Basic metals regained the upward momentum due to the seasonal restocking period after the Chinese New Year. Meanwhile, the zero-covid policy in China continued to restrict the ramp-up in production. The supply and demand dynamics are tightening.
High Inflation is expected to last throughout 2022. Federal Reserves had turned hawkish regarding monetary policies in 2022 and 2023. However, global hard commodities such as oil, coal, and basic metals are edging up regardless of the rate hike and balance sheet reduction. As long as China sticks to its draconian lockdown measures, global supply chain disruptions will remain status quo. Therefore, liquidity contraction will not solve the problem completely. The decisive factor is that demand growth will outpace supply growth.
Updated market consensus of the estimated net profit growth in FY22/23 is 17.5%/6.8% respectively, which translates to 13.6x/12.8x forward PE. The current PE is 19.3x. Bloomberg consensus average 12-month target price is HK$6.19.
