XinRen

XinRen: Update on Plant Trip. We came out feeling confident on grp’s management as we toured grp’s fabrication and smelting plants. Management remains confident on future prospects and 4Q, tipping higher aluminium prices (Forecast Rmb16,000/t), lack of supply (17m tpa produced in China, vs 20m tpa of demand) and increased production as key Rev contributions….

We further understand that grp’s smelting plants are running at full capacity, and have just completed phase 1 of their fabrication plant, which is estimated to reach full capacity in 6 mths time. When fully completed, grp will triple its fabrication production capacity to 150,000 tpa, placing grp as one of the 5 biggest fabricated producers in China….

We note further that grp has a competitive cost structure, with long-term contracts for the supply of Alumina, hedged at 17.1% to Aluminium price till 2014, while grp enjoys low cost electricity and rebates due to its plants proximity to power stations and coal riched regions in China….

Management appears confident on hitting DBS Vickers FY10 Rev forecast of Rmb5.83b. We note that at current price, grp trades at undemanding valuations of 6.4x FY11E PE, vs global peers weighted average of 12.8x FY11E PE.