Jiangxi Copper (SEHK:358) Valuation Check After JP Morgan Rating Upgrade On Copper And China Policy Outlook

Simply Wall St.01-15

AdvertisementJP Morgan’s rating move puts Jiangxi Copper in focus JP Morgan’s upgrade of Jiangxi Copper (SEHK:358) to a Neutral rating, tied to a constructive view on copper and Chinese policy trends,...

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This suggests momentum has been...","collect":0,"end_time":0,"defaultTopTitle":"simplywall.st","property":[],"viewcount":null,"language":"en","relate_stocks":{"LU0405327494.USD":"ALLSPRING CHINA A FOCUS \"I\" (USD) ACC","BK1592":"有色金属","BK1513":"稀土概念","BK1594":"碳中和概念股","DCF":"Dreyfus Alcentra Global Credit Income 2024 Target Term Fund, Inc","00358":"江西铜业股份","BK1568":"钢铁金属股","SG9999002950.SGD":"United Asian Growth Opportunities SGD","BK1206":"铜","LU0405327148.USD":"ALLSPRING CHINA A FOCUS \"A\" (USD) ACC"},"translate_title":"摩根大通上调铜评级和中国政策前景后，江西铜业（SEHK：358）的估值检查","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"00358":0.9,"DCF":1},"content_text":"AdvertisementJP Morgan’s rating move puts Jiangxi Copper in focus JP Morgan’s upgrade of Jiangxi Copper (SEHK:358) to a Neutral rating, tied to a constructive view on copper and Chinese policy trends, has pushed the stock onto more investors’ radars. See our latest analysis for Jiangxi Copper. That upgrade comes after a strong run in the shares, with the HK$46.3 share price sitting on a 30 day share price return of 33.58% and a 1 year total shareholder return of 294.42%. This suggests momentum has been building as investors reassess Jiangxi Copper alongside firmer views on copper and Chinese policy support. If this kind of move has your attention, it could be a good moment to broaden your watchlist and check out fast growing stocks with high insider ownership as potential next ideas. With Jiangxi Copper trading at HK$46.3 against an analyst price target of HK$39.60, but flagged with a 75% intrinsic discount, you have to ask: is there real value left here, or is the market already pricing in future growth? Price-to-Earnings of 17.9x: Is it justified? On our numbers, Jiangxi Copper screens as good value on some measures, but the 17.9x P/E at HK$46.3 raises a few questions about what is already in the price. The P/E ratio compares the current share price with earnings per share, so it is a quick way of seeing how much investors are paying for each unit of profit. For a mining and smelting business like Jiangxi Copper, that matters because earnings can be sensitive to commodity prices, operating costs and capital intensity. Here, the story is mixed. The stock trades at a slightly higher P/E than the estimated fair P/E of 17.2x. This points to a small premium compared to where our fair ratio model suggests the market could settle over time. At the same time, the current 17.9x P/E is far below the peer average of 37.6x and a touch below the Hong Kong Metals and Mining industry average of 18.5x. This signals the market is not assigning the same earnings multiple as many comparable names despite Jiangxi Copper having high quality earnings and forecast profit growth. Against that backdrop, the SWS DCF model currently indicates a fair value of HK$188.08 per share, compared with the last close of HK$46.3. This implies the shares are trading at a large discount to that intrinsic value estimate based on projected future cash flows. The DCF approach takes expected future cash flows and then discounts them back to today using a required rate of return, which can be useful for businesses where earnings and cash generation are both important reference points. In Jiangxi Copper's case, the combination of forecast earnings growth, high quality earnings and sector characteristics feeds into that DCF view, which sits alongside the more modest signal coming from the P/E multiples. Explore the SWS fair ratio for Jiangxi Copper Look into how the SWS DCF model arrives at its fair value. Result: Price-to-Earnings of 17.9x (ABOUT RIGHT) However, you still need to watch for copper price swings and any shift in Chinese policy support that could challenge both the earnings outlook and those valuation signals. Find out about the key risks to this Jiangxi Copper narrative. Growth outlook, returns and quality of earnings Looking past the share price, Jiangxi Copper’s fundamentals present a mixed but interesting picture. Earnings are forecast to grow around 12.2% per year, which is in line with the wider Hong Kong market, while revenue is expected to grow 6.3% per year, slower than both the market and a high growth threshold of 20%. That combination suggests analyst expectations are leaning more on profit improvement than on rapid top line expansion. Some of that may link back to the company’s high quality earnings track record, with net profit margins at 1.5% compared with 1.3% last year and earnings growing 15.6% per year over the past 5 years. Return on equity sits at 9.2%, which is described as low against a 20% benchmark, and is only forecast to reach 10.7% in three years. For you as an investor, that points to a business where capital returns are steady rather than high. As a result, valuation and entry price can matter more to your long term outcome. On growth, earnings are forecast to increase 12.18% per year, but not at a rate that would be treated as significant in high growth terms. Earnings growth over the past year of 22.2% is ahead of the company’s 5 year average of 15.6% per year, although it did not keep pace with the 39.4% posted by the wider Metals and Mining industry. Even so, Jiangxi Copper has outpaced both the Hong Kong Metals and Mining industry and the Hong Kong market over the past year, with a 1 year total shareholder return of 294.42% compared with 178.1% for the industry and 36.4% for the market. That gap is large enough that it naturally raises the question of how much of the forecast earnings improvement might already be reflected in today’s price. Balance that with the valuation signals pointing to good value, including trading around 75.4% below an internal fair value estimate, and you have a set up where quality of earnings and growth look reasonable, but return on equity and future growth rates are not especially high. Board and management factors also sit in the middle ground. The board is described as experienced, with an average tenure of 3.3 years, and the management team averages 4.8 years, but less than half of the board is independent and there has been an elevated number of new director appointments over the last 3 years. CEO Shaobing’s total compensation of US$178.70k is below the average for similar sized Hong Kong companies, and is said to be consistent with recent company performance. On the risk side, 100% of liabilities are funded through higher risk sources such as external borrowing rather than customer deposits. For a non bank like Jiangxi Copper that is typical, but it still means you should pay attention to leverage, financing costs and how the company manages its balance sheet through commodity cycles. With high quality earnings, moderate growth expectations and strong recent share price performance sitting alongside modest return on equity and some governance questions, Jiangxi Copper is the kind of name where ongoing monitoring of both fundamentals and valuation could matter as much as any single snapshot in time. 0 important warning signs Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Jiangxi Copper for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 884 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.  Build Your Own Jiangxi Copper Narrative If you see the numbers differently or prefer to work from your own data, you can build a personalised view in minutes with Do it your way A good starting point is our analysis highlighting 3 key rewards investors are optimistic about regarding Jiangxi Copper. Looking for more investment ideas? If Jiangxi Copper is on your radar, do not stop there. Widen your scope and line up a few more high conviction ideas while you are in research mode.  Hunt for underappreciated potential with these 884 undervalued stocks based on cash flows that screen on cash flows instead of just headlines. Tap into the growth story around artificial intelligence by scanning these 25 AI penny stocks that tie real businesses to this theme. Target income-focused opportunities through these 12 dividend stocks with yields > 3% that combine yield with fundamentals you can actually assess.   This article by Simply Wall St is general in nature. We provide commentary based on historical data\n    and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your\n    financial situation. We aim to bring you long-term focused analysis driven by fundamental data.\n    Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.\n    Simply Wall St has no position in any stocks mentioned.New: Manage All Your Stock Portfolios in One PlaceWe've created the ultimate portfolio companion for stock investors, and it's free.• Connect an unlimited number of Portfolios and see your total in one currency• Be alerted to new Warning Signs or Risks via email or mobile• Track the Fair Value of your stocksTry a Demo Portfolio for FreeHave feedback on this article? Concerned about the content? Get in touch with us directly. 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