XinRen Aluminium

XinRen Aluminium: Annouced strong set of FY10 Results which were slightly ahead of street bullish consensus. FY10 Rev at Rmb6.2b, +45.8%YoY and above market estimates by 7.2%, while Net Profit at Rmb381m, +24.6%YoY. Without taking into account Rmb29.2m of expenses from its recent IPO, net profit would have been at Rmb410.6m in FY10, +35% YoY…..

Gross Margins however declined slightly to 12.5%vs 13.4%YoY, primarily due to the higher costs of alumina, and the increase in proportion of lower margin trading sales. Strong Rev was due to higher sales volumes and ASP across all business segments, with Aluminium Spot Price Averaging Rmb16,000/ton in FY10, +17.5%YoY, with Grp’s smelting segment remaining the key revdriver contributing 67.7% of FY10 Rev…..

Continued expansion in grp’s fabrication segment however saw the highest growth, with rev +61.9% YoY to Rmb567.9m, as grp added 50,000t of additional fabrication capacity in FY10, while grp’s trading rev segment spiked in FY10 as the Grp exported more aluminum plates due to better pricing and demand from the overseas market….

Going forward, grp remains confident on the prospects of Co, with Aluminium prices expected to maintain/climb higher, and is on track to add an additional to 50,000 MT by 3Q 2011 in its fabrication plant, bringing total capacity for segment to 150,000 MT p.a…..

At current price, valuations appear compelling, with grp trading at a meer 5.5x FY10 P/E vs peers average of 20x, with a good probability of further re-reating going forward, as grp ramps up its capacity (plants currently) at near full capacity, and on the back of surging aluminium prices. Initial concerns on high gearing has also been mitigated, with grp’s net gearing dropping to 75.2% after IPO, from an initial 312.6%, and we maintain our bullish view on Co.