Date
3 July 2012
Recommendation Change
Asia Metals &Mining
Life
getting tougher: Earnings and TPdowngrades
across region
Downgrades on DB's reduced commodity price forecasts
DB’s global commodity team has revised commodity price forecasts,
with most being downgraded in 2012/3. This note updates our estimates and valuations
for metals & mining stocks under our coverage. Unsurprisingly, the general
move is downwards with the majority of 2012/3 NPATs and TPs being cut. We also
downgrade Hindustan Zinc (Indian zinc) and Harum (Indonesian coal) from Buy to
Hold. Gold remains our preferred metal and Zhaojin is our favored gold name in
the region. Although we cut the earnings and TPs of coal stocks, we
fundamentally prefer Indonesian names over Chinese; PTBA and Adaro remain top
picks. Risks: volatility in commodity prices.
Lower coal prices negative for coal producers, especially
Indonesian
DB has reduced its 2012 and 2013 avg thermal coal price forecasts
by 15% to US$93/t and 20% to US$92/t, respectively. As well as incorporating
these revisions into our forecasts, we have also further cut our China domestic
coal price assumptions. Specifically, we cut Yanzhou Coal’s 2013 NPAT by 10% while
our Indo forecasts decline substantially (more exposed to international prices).
In contrast, Shenhua’s earnings are least impacted. Despite these cuts, we
continue to prefer the Indo coal names (PTBA and Adaro), especially as we believe
seaborne coal prices will bottom earlier than China domestic prices.
Minmetals most exposed to industrial metal price cuts
Our commodities team has cut 2012/3 price forecasts across the key
industrial metals, including aluminum (-11%/-4%), copper (-8%/-4%), nickel
(-17%/-3%), lead (-7%/-10%) and zinc (-11%/-10%). These revisions impact
Minmetals the most (exposure to copper, zinc and lead) and we cut its 2013
profit by 20% and TP by 13%. Vale Indo and Antam, two Indonesian nickel-focused
stocks, suffer target price declines of 9% and 7% respectively. Finally, we cut
Hindalco’s 2013 NPAT by 17% given its aluminum-based business.
Gold price 2012 forecast cut but 4Q rally expected; Zhaojin top
gold pick
Gold remains DB’s favored metal over the medium term and although
we cut our 2012 gold price forecast by 4%, we expect gold to rally in 4Q and
increase our in-house 2013 estimate by 3% to US$2,050/oz. Although we trim
Zhaojin’starget price by 5%, it remains our top pick in the gold segment,
primarily given its >90% gold exposure and future 10-15% production growth.
We continue to like Zhaojin (gold), PTBA (coal) and Adaro (coal)
We remain relatively cautious on the regional metals & mining
sector, primarily on slowing demand. The cuts to our commodity price forecasts
add to our general sense of caution. Nevertheless, our commodities team is
expecting a 4Q rebound in some commodities and gold remains the preferred
metal. As such, Zhaojin remains our top pick given its high gold exposure. We
also believe Indonesian coal stocks such as PTBA and Adaro have largely priced
in the coal price downside and 3Q coal price bottoming. The key risks in both directions
remain the demand profile and volatile commodity prices.
