Intrinsic Value Aluminum Corporation of China Limited (2600.HK)

• Previous Close: HK$13.85
• Intrinsic Value: HK$3.24
• Upside potential: -77%

Stock Valuation Context

Business Model And Market Position

Aluminum Corporation of China Limited (Chalco) is a state-owned integrated aluminum producer operating within the People's Republic of China's basic materials sector. Its core revenue model is vertically integrated, spanning the entire aluminum value chain from mining bauxite and refining it into alumina to smelting primary aluminum and producing various aluminum alloys and carbon products. The company operates through five distinct segments: Alumina, Primary Aluminum, Trading, Energy, and Corporate and Other Operating, which allows it to capture value at multiple production stages while mitigating raw material price volatility. Chalco's market position is fundamentally tied to its scale and its role as a key supplier to China's massive construction, automotive, and manufacturing industries. Its integrated structure, which includes captive coal mining and power generation assets, provides a crucial cost advantage in an energy-intensive industry. While it faces competition from other domestic giants and global producers, its extensive operations and government backing cement its status as a national champion in a strategically vital commodity.

Revenue Profitability And Efficiency

For the fiscal year, the company reported robust revenue of HKD 237.1 billion, demonstrating its significant scale within the aluminum industry. Net income reached HKD 12.4 billion, translating to a net profit margin of approximately 5.2%. The generation of HKD 32.8 billion in operating cash flow indicates solid cash conversion from its core operational activities, supporting its capital-intensive business model.

Earnings Power And Capital Efficiency

The company's earnings power is evidenced by diluted earnings per share of HKD 0.72. Capital expenditures of HKD 10.4 billion reflect ongoing investments to maintain and potentially expand its production facilities. The substantial operating cash flow comfortably covers these investments, indicating efficient capital allocation for sustaining its industrial operations.

Balance Sheet And Financial Health

The balance sheet shows a cash position of HKD 22.2 billion against total debt of HKD 55.1 billion. This results in a net debt position, which is common for capital-intensive industrial firms. The company's financial health is supported by its strong operating cash flow generation, which provides the necessary liquidity to service its obligations and fund its operations.

Growth Trends And Dividend Policy

The company has demonstrated a commitment to shareholder returns, distributing a dividend of HKD 0.3714 per share. Its growth is inherently linked to global aluminum demand cycles, China's industrial output, and its ability to manage input costs, particularly energy. Future trends will likely be influenced by commodity price fluctuations and domestic economic policies.

Valuation And Market Expectations

With a market capitalization of approximately HKD 145.7 billion, the market values the company at a price-to-earnings multiple derived from its current earnings. A beta of 2.197 indicates the stock is significantly more volatile than the broader market, reflecting its high sensitivity to global economic cycles and commodity price swings.

Strategic Advantages And Outlook

Chalco's primary strategic advantages are its fully integrated operations, massive scale, and state backing, which provide cost and supply stability. The outlook is tied to aluminum demand from key end markets and the company's success in navigating environmental regulations and energy cost pressures. Its vertical integration remains a critical factor for long-term competitiveness.

Sources

Company Annual ReportHong Kong Stock Exchange Filings