Aluminum Corp. of China Ltd. :ACH-US: Earnings Analysis: Q3, 2016 By the Numbers : November 15, 2016

Aluminum Corp. of China Ltd. reports financial results for the quarter ended September 30, 2016.

We analyze the earnings along side the following peers of Aluminum Corp. of China Ltd. – Kaiser Aluminum Corporation and Norsk Hydro ASA Sponsored ADR (KALU-US and NHYDY-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 6,231.10 million, Net Earnings of USD 7.52 million.
  • Gross margins widened from 2.01% to 5.26% compared to the same period last year, operating (EBITDA) margins now 2.85% from 5.81%.
  • Year-on-year change in operating cash flow of 7,185.35% 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:

2016-09-30 2016-06-30 2016-03-31 2015-12-31 2015-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 6231.1 4372.15 3184.23 4387.1 4607.68
Revenue Growth (%YOY) 35.23 -29.75 -27.21 -26.83 -18.09
Earnings (mil) 7.52 5.82 2.94 177.71 -151.9
Earnings Growth (%YOY) 104.95 201.7 -70.92 110.12 27.48
Net Margin (%) 0.12 0.13 0.09 4.05 -3.3
EPS 0.01 0.01 0 0.31 -0.24
Return on Equity (%) 0.41 0.31 0.16 9.64 -8.04
Return on Assets (%) 0.11 0.08 0.04 2.42 -1.99

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Market Share Versus Profits

Revenues History
Earnings History

ACH-US‘s change in revenue this period compared to the same period last year of 35.23% 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 42.52% and earnings by 29.11% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings growth has been influenced by the year-on-year improvement in gross margins from 2.01% to 5.26%. However the company’s overhead costs have prevented it from fully capitalizing on these gross margin improvements. In fact, the company’s operating margins (EBITDA margins) showed no improvement over the same period last year.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Cash Versus Earnings – Sustainable Performance?

ACH-US‘s change in operating cash flow of 7,185.35% 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.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from -0.52% to 2.85% and (2) one-time items. The company’s pretax margins are now 0.71% compared to -4.20% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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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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