NHYDY - Aluminum Corporation Of China Losing Out To Its Peers

Summary

• Prospects for aluminum are bright but being the world's largest producer does not mean it is the most profitable.
• Delisting from NYSE will most likely reduce Aluminum Corporation Of China's interest to uphold high standards of reporting to its shareholders.
• Sell ACHHY and replace it with NHYDY.

Investment thesis

In early September we pointed out in our first article on the Aluminum Corporation of China ( OTCPK:ACHHY ), one of the world's largest producers of alumina , that it was a leader in volume but not in profitability.

We reassess its performance and also measure it up against its peers to see whether Chalco, as it is known, is worth investing in at this moment in time.

Let us start by looking at its most recent financial results.

Financial Results - first 9 months of 2022

On the top line, they had a revenue of RMB 206 billion compared to RMB 195 billion in 2021.

However, the net profit attributable to shareholders, after excluding extraordinary gains and losses was RMB 4.45 billion. That was down 37.5% from the year before.

EPS was RMB 0.262 with RMB 0.031 in Q3. If we assume that Q4 earnings are in line with Q3, we estimate that FY 2022 EPS will be about RMB 0.29.

Net cash flow from operation was RMB 19.4 billion. That was an increase of 8.8% from 2021. Net cash outflow from financing activities amounted to RMB 9.2 billion.

The balance of cash at the end of September was RMB 20.9 billion. That is considerably higher than the RMB 12.5 billion it held at the end of September 2021.

The dividend on a trailing twelve months basis is RMB 0.0318 per share, which equates to HKD 0.0372

More alarming is the absence of any dividend for the five earlier years.

How does Chalco compare with its peers?

Chalco's fundamentals do not stack up well against Norsk Hydro ( OTCQX:NHYDY ) which looks much more attractive at this stage. Alcoa ( AA ) has basically no debt which is a good thing, but it has a rather low level of ROE and a poor dividend yield.

The share price of any company might go wherever it wants to go, and as we know it can at times be more of a voting machine than a weighing machine.

For some reason, bewildering as it may be, Chalco has done better than Norsk Hydro in 2022, increasing by 21%, while Alcoa has been flat for the year.

Business development

In a recent article on Sinopec Shanghai Petrochemical Co, we discussed the aspect of mainland Chinese companies delisting from the NYSE or Nasdaq. It will give readers some information on what to do in terms of transferring ownership to their listings in Hong Kong or Shanghai.

The best way to buy and hold Chalco is through its listing in Hong Kong under code 2600. Most brokers that we are aware of will be able to execute such trades and be a custodian of the shares. Another place is on the Shanghai Stock Exchange under the code 601600.

The price of aluminum had a good run early in the year, but it started to slide coming off.

When we look at the forward curve, the market expects the price to increase again in the first half of 2023.

Conclusion

Chalco, like other state-owned Chinese companies, does not have good communication with all its shareholders high on its agenda.

Few, if any, quarterly and interim reports and no proper presentations are published. One should expect this from a company of this size.

This is for us a major minus.

In terms of aluminum and other non-ferrous metals, we would recommend readers that do take an interest in this sector to read an excellent article by fellow SA author Joseph L. Shaefer on the prospects of aluminum in general and particularly with regards to Norsk Hydro.

We share his optimism on both.

This does bring us to ask ourselves why would we want to invest in the Aluminum Corporation of China.

Based on fundamentals as we see them, we would rather allocate capital to NHYDY than to ACHHY.

Therefore, we would sell ACHHY and replace it with NHYDY.

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