Company Name: XINREN ALUMINUM HOLDINGS LTD
Research House: DBS Vickers
DBS Vickers raises Xinren Aluminium (MN5.SG) target price to $0.76 from $0.70 and keeps its Buy recommendation after the China-based aluminum producer announced it intends to acquire 100% of the equity interest in two China smelting plants, Liupanshui Shuangyuan and Yichang Changjiang, for an aggregate consideration of no more than RMB442.4 million ($86 million), financed by internal funds; the total smelting capacity of the plants, currently owned by group majority shareholders the Zeng family, is 275,000 tons.
DBS Vickers analyst Eun Young Lee says “we believe the valuation discount should narrow going forward given that the reason for the discount was its indirect ownership in the two smelting plants, its major revenue-generating assets.” The new target is pegged at 9.5x FY11 P/E, reflecting the transition to direct ownership, which translates to 7.2x FY11 EV/EBITDA and 2.5x FY11 P/BV.
The new target is also benchmarked at a 20% discount, against 25% previously, to the weighted average of its global peers. The stock is +1.1% at $0.45.
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