Chalco Shares Set to Fall After Disappointing Q2

HONG KONG, Aug. 25 -- Shares in Aluminum Corp of China Ltd (2600.HK: Quote), the world's third largest alumina producer, were set to open lower on Tuesday after the company reported a bigger-than-expected quarterly loss, shattering investors' hopes for a speedy recovery.

    The top aluminium producer of China, also known as Chalco (601600.SS: Quote), recorded gross losses in all segments, which resulted in higher-than-expected production and financial costs, analysts said on Tuesday.

    Chalco reported a net loss of 1.63 billion yuan ($238.6 million) for April-June, its third straight quarterly loss, on low utilisation levels due to weak demand and prices as the financial crisis battered aluminium producers and their clients in the automotive and construction industry. [ID:nPEK188870]

    It missed an average forecast of a 445 million yuan loss from six analysts polled by Reuters and compared with a restated profit of 1.14 billion yuan in the same period last year.

    "Its balance sheet remains challenged by a high gearing level," HSBC said in a research note on Tuesday.

    "While we expect Chalco to return to profitability in the second half of 2009, we forecast its full year to remain as a loss," it said.

    For the first half, Chalco posted a loss of 3.52 billion yuan versus a mean forecast for a 2.4 billion yuan loss and against a restated profit of 2.39 billion yuan a year ago.

    Its U.S. rival, Alcoa (AA.N: Quote), also reported a third consecutive quarterly loss in July but cost cuts helped the largest U.S. aluminium maker beat estimates by a large margin. [ID:nN08471164]

    HIGH VALUATION

    Optimism that aluminium demand and prices have rebounded helped Chalco's shares to more than double this year to HK$9.21, up 3.4 percent on Monday, beating a 42 percent rise in the broader market .HSI year to date.

    Chalco now trades at 1.9 times book value for 2010 with return on equity of 4 percent and 49.8 times 2010 earnings, Morgan Stanley estimated.

    "The shares appear even less attractive to us compared with Alcoa at 25 times (p/e)," it said in a research note on Tuesday.

    Chalco's plan to sell up to 1 billion new A shares and idled capacity restarts are expected to weigh on its shares, analysts said.

    However, Chalco is optimistic about aluminium pricing.

    "In the second half of 2009, as global economy stabilizes and demand rebounds, aluminium price is to fluctuate toward higher ends," it said in a statement.

    China, the world's biggest consumer of aluminium, has led a recovery in demand, helped largely by Beijing's 4 trillion yuan stimulus package. 

    Aluminium hit a record high of $3,380 a tonne in July 2008 before collapsing to $1,300 a tonne in February amid fears about a further deterioration in the global economy.

    But prices on the LME MAL3 and Shanghai SAFc3 exchanges regained some ground and have risen more than 25 percent this year on stronger demand for the metal that is used in transport and packaging.

    (Source: Reuters)