AUSTRALIA MINING SECTOR:4Q17 COMMODITY REVIEW:OPPORTUNITIES OVER HEATING SEASON

时间:2017年10月13日 17:01:11 中财网
Upgrading sector earnings 15% in CY/FY18, FCF yield at +10%
We are upgrading our price forecasts for met. coal, copper, nickel, zinc, andmineral sands. Supply-side cuts remain the key driver into next year, and weexpect prices for the bulks to fall from current levels. We are more positive onthe base metals and see deficits persisting and supporting prices. We haveupgraded mining sector earnings by 15% in CY/FY18, but note that equitiesgenerally appear fully valued (1.1xNPV, ex-RIO and BHP)。 The sector is tradingon +10% FCF yield, with gearing dropping to just 12% in 2018. Our top picksare RIO, BHP, SFR, & SBM. Our SELL ratings are ILU, NCM, NST, RRL & WSA.
We upgrade OZL to HOLD, downgrade OGC, IGO to HOLD, WSA to SELL.
Upgrading; coking coal, copper, nickel, zinc, mineral sandsMajor upgrades to our commodity forecasts in this review are; coking coal(+48% to US$170/t in 2018, +17% to US$140/t in 2019 vs. spot US$183/t),base metals; copper (+15%/+5%), nickel (+12%/+13%), zinc (+12%/+19%) in2018/19 with supply/demand balances pointing to medium-term deficits. Werecently revised iron ore forecasts, including upgraded lump premiums andwider low grade discounts, in our 5 Oct. note, Global Iron ore sector- Highgrade to stay warm over winter. With the introduction of Chinese steelproduction cuts over heating season (Nov to March), we forecast 62% Fe ironore prices retracing into the US$50-60/t range (US$55/t for 4Q17), then arecovery to US$70/t by mid-2018. On aluminium (Global Aluminium Sector-Market tightening on China cuts, 12 Sept.), we expect the global aluminiummarket to shift into material deficits in 2H17 through to 2019, with smeltercurtailments in China and supply discipline from ex-China producers. Weexpect prices to be well supported until the end of the Chinese heating seasoncuts in March 2018, and forecast 94c/lb in 2018.
Top Picks; RIO, BHP, SBM, SFR, SYR, AQG. SELLs; ILU, NCM, NST, RRL, WSAWe have upgraded our 2017 sector earnings by an average 2% (CY/FY18:15%), and have increased NPVs by an average 2%. The largest EPS upgradesare to BHP (+26% FY18, mostly on met. coal and copper), S32 (+28% FY18 onmet. coal, alumina and base metals), RIO (+10% 2018 on met. coal andcopper), and copper names OZL and SFR (+22% and +26% respectively inCY/FY18)。 Key changes to NPV are BHP (+4% to A$29.5/sh) & RIO (+3% toA$79.5/sh) on met.coal and copper. Sector FCF remains strong (average FCFyield is c.10% in CY/FY18) and average sector gearing will decline from 16% in2017 to just 12% in 2018 on our forecasts. We continue to think that growthand M&A (globally) will be back on the agenda sometime in 2018. Our TopPick of the bulks remains RIO (0.8xNPV, 13% FCF yield), sector leadingproduction growth, and ongoing capital management. We also rate BHP aBUY, with our thesis predicated on delivering a revamped strategy to increasegroup returns. In base and precious metals, we rate SBM, SFR, AQG and DCNa BUY and NCM, NST, RRL & WSA a SELL. We have upgraded OZL,downgraded OGC and IGO to HOLD on valuation (c. 1xNPV), and downgradedWSA to SELL on valuation (1.2xNPV)。

Valuation and sector risks
PT’s set broadly in-line with DCF derived valuations. Company risks;commodity/currency movements (p14)。 Ratings, PTs and estimates changedfor several companies under coverage 。

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