According to a research report, JPMorgan Chase expects positive earnings surprises from companies in China's basic materials sector, particularly in copper, gold, aluminum, lithium, and some coal. The bank believes investors will gradually refocus on earnings and fundamental supply-demand dynamics.
The firm's order of preference for sub-sectors is copper, followed by gold, aluminum, lithium, coal, and then steel. It notes that copper and gold stocks have already seen valuation adjustments due to expectations of aggressive interest rate hikes, but their physical fundamentals remain robust.
For the copper segment, JPMorgan forecasts first-half profit growth of 120%, 94%, 92%, and 79% year-on-year for MMG (HKEX: 01208), CMOC (HKEX: 03993), Jiangxi Copper (HKEX: 00358), and Zijin Mining (HKEX: 02899), respectively. This is attributed to a 31% year-on-year increase in Shanghai Futures Exchange copper prices and a 163% rise in sulphuric acid prices.
The bank lowered its target price for Zijin Mining to HK$50 from HK$55, for CMOC to HK$25 from HK$28, and for Jiangxi Copper to HK$44 from HK$51. It maintained its target for MMG at HK$13. All four stocks retain an "Overweight" rating.
JPMorgan significantly reduced its target price for Zijin Gold Intl (HKEX: 02259) to HK$170 from HK$240, maintaining an "Overweight" rating and expecting a compound annual growth rate in earnings of about 42% from 2025 to 2028. For SD Gold (HKEX: 01787), the target was cut to HK$22.5 from HK$35, with a "Neutral" rating maintained, as the bank views its profit growth as driven more by gold prices than operational improvements.
In the aluminum sector, JPMorgan considers market concerns over Indonesian supply to be excessive. It lowered its target price for the H-shares of CHALCO (HKEX: 02600) to HK$12 from HK$16, keeping an "Overweight" rating, and sees potential for a re-rating of the valuation discount for domestic aluminum companies compared to global peers.
For lithium, JPMorgan expects Ganfeng Lithium (HKEX: 01772) to potentially benefit from strong growth in its battery business and upside in lithium carbonate prices. It upgraded the stock to "Overweight" from "Neutral," maintaining a HK$70 target price. The target for Tianqi Lithium (HKEX: 09696) was lowered to HK$36 from HK$52, with a "Neutral" rating retained, reflecting an increased expectation for the A/H share premium.
Regarding coal and steel, JPMorgan maintained a "Neutral" rating on China Shenhua (HKEX: 01088) and Yankuang Energy (HKEX: 01171), with targets of HK$44.5 and HK$12.5 (down from HK$14), respectively. It maintained an "Underweight" rating on Angang Steel (HKEX: 00347), cutting the target to HK$0.8 from HK$1.3, and anticipates continued losses for the company in 2026 and 2027.
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