CapitalCubeAluminum Corp. of China Ltd. reports financial results for the quarter ended March 31, 2017.
We analyze the earnings along side the following peers of Aluminum Corp. of China Ltd. – Alcoa Corp., Kaiser Aluminum Corporation and Norsk Hydro ASA Sponsored ADR (AA-US, KALU-US and NHYDY-US) that have also reported for this period.
Highlights
- Summary numbers: Revenues of USD 5,902.34 million, Net Earnings of USD 56.80 million.
- Gross margins widened from 6.90% to 7.03% compared to the same period last year, operating (EBITDA) margins now 4.31% from 3.38%.
- Year-on-year change in operating cash flow of 935.19% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
- Earnings growth from operating margin improvements as well as one-time items.
The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:
| 2017-03-31 | 2016-12-31 | 2016-09-30 | 2016-06-30 | 2016-03-31 | |
|---|---|---|---|---|---|
| Relevant Numbers (Quarterly) | |||||
| Revenues (mil) | 5902.34 | 7587.51 | 6231.1 | 4372.15 | 3184.23 |
| Revenue Growth (%YOY) | 85.36 | 72.95 | 35.23 | -29.75 | -27.21 |
| Earnings (mil) | 56.8 | 42.9 | 7.52 | 5.82 | 2.94 |
| Earnings Growth (%YOY) | 1832.29 | -75.86 | 104.95 | 201.7 | -70.92 |
| Net Margin (%) | 0.96 | 0.57 | 0.12 | 0.13 | 0.09 |
| EPS | 0.09 | 0.07 | 0.01 | 0.01 | 0 |
| Return on Equity (%) | 0.74 | 0.57 | 0.1 | 0.08 | 0.04 |
| Return on Assets (%) | 0.82 | 0.61 | 0.11 | 0.08 | 0.04 |
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Market Share Versus Profits
ACH-US‘s change in revenue this period compared to the same period last year of 85.36% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that ACH-US is holding onto its market share. Also, for comparison purposes, revenues changed by -22.21% and earnings by 32.41% compared to the immediate last period.
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Earnings Growth Analysis
The company’s earnings growth was influenced by year-on-year improvement in gross margins from 6.90% to 7.03% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 3.38% to 4.31% compared to the same period last year. For comparison, gross margins were 7.79% and EBITDA margins were 3.89% in the last reporting period.
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Gross Margin Trend
Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.
ACH-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently -37.67, compared to last year’s level of -72.23 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.
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Cash Versus Earnings – Sustainable Performance?
It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.
ACH-US‘s change in operating cash flow of 935.19% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.
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Margins
The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 3.38% to 4.31% and (2) one-time items. The company’s pretax margins are now 2.13% compared to 1.09% for the same period last year.
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Company Profile
Aluminum Corp. of China Ltd. engages in the manufacture and distribution of alumina, primary aluminum, and energy products. It operates through the following business segments: Alumina, Primary Aluminum, Energy, Trading, and Corporate and Other Operating Segments. The Alumina segment includes of mining and purchasing bauxite and other raw materials, refining bauxite into alumina, and selling alumina. The Primary Alumina segment consists of procuring alumina and other raw materials, supplemental materials, and electricity power, smelting alumina to produce primary aluminum. The Energy segment covers research and development, production, and operation of energy products such as coal mining, electricity generation by thermal power, wind power and solar power, and new energy related equipment manufacturing business. The Trading segment involves the trading of alumina, primary aluminum, aluminum fabrication products, other non-ferrous metal products, coal products, and raw and supplemental materials. The Corporate and Other Operating Segments refers to the management of corporate, research and development activities, and others. The company was founded on September 10, 2001 and is headquartered in Beijing, China.
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