April 202041

(01333 HK)中国忠旺China Zhongwang

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of aluminum flat-rolled products to rise due to product mix improvement. The Company holds great competitive advantages in the production of aluminum extrusion and flat-rolled products. The Company is the largest producer of aluminum alloy formwork in China, with over 40% of total market share in 2019 according to Antaike, and confronts little competition in the domestic market. The Company is able to maintain the selling price of aluminum alloy formwork and collect considerable processing fees. In 2019, the ASP of aluminum alloy formwork rose slightly while aluminum price declined by about RMB400/t. We believe that the Company is able to maintain the ASP of aluminum alloy formwork. The average processing fees of industrial aluminum extrusion products also rose slightly in 2019. The average processing fees of industrial aluminum extrusion products were mainly determined by the product mix. The extrusion production lines of the Company are expected to run at full capacity and we expect the processing fees assumptions of industrial aluminum extrusion products to be maintained. We believe that newly installed extrusion capacity will be allocated to products with higher value. We expect the profitability of extrusion lines to continue to improve due to product mix change. However, we believe average processing fees of aluminum extrusion products of the Company to decline moderately in 2020 as downstream demand will be severely hit by the global outbreak of COVID-19 and consumers may require lower ASP of their products. The processing fees of flat-rolled products in 2019 decreased as the Company only produced standard products with lower processing fees. Although total output of aluminum flat-rolled products increased rapidly, they were still low-value standard products. We expect such situation to change in 2020. As the Company has acquired more authentication of high-end products, it will produce more flat-rolled products with higher processing fees. The Company has already been conducting authentication for 3 years and we believe that more authentication of high-end products will be acquired in the coming years, which will improve the profitability of its flat-rolled production lines. We believe that more high-end products will be put into production in the future and raise average processing fees of flat-rolled products.

Revise down TP of the Company to HK\$2.05, and downgrade to "Neutral". China Zhongwang is a leading processed aluminum product developer and manufacturer in Asia. The Company has established competitive advantages in the aluminum processing industry and we expect the Company to continue to lead in the aluminum processing industry. The commencement of production of high-value aluminum flat-rolled products will be the future profit driver of the Company and has complementary and synergistic effects with current industrial aluminum extrusion products. However, we expect total sale of aluminum extrusion products and flat-rolled products of the Company to be severely impacted by the global outbreak of the COVID-19 pandemic. We expect the output of aluminum alloy formwork and aluminum extrusion products of the Company to decrease by about 10%-20% in 2020 and total output of flat-rolled products to be around 500,000 tons. We expect processing fees assumptions of aluminum extrusion products to decline moderately, but processing fees of aluminum flat-rolled products to rise due to product mix improvement. We expect deep-processed products to grow fast in the next 3 years due to strong downstream consumption demand. The decline in net profit of the Company in 2019 was mainly due to business model adjustment and lower processing fees of flat-rolled products, the extrusion business of the Company still enjoys great competitive advantages. We believe that net profit of the Company holds great growth potential due to product mix change and output growth in the future. The operation of the Company is stable and we believe that the Company is able to get through the tough period of global COVID-19 pandemic. We revise down the TP of the Company to HK\$2.05 due to lower market valuation level during the COVID-19 pandemic, which is equivalent to 6.0x FY20 PE and 0.4x FY20 PB. We downgrade the investment rating of the Company to "Neutral".

April 202041

(01333 HK)中国忠旺China Zhongwang

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# Table-1: Peers Comparison

<table><tr><td rowspan="2">Company</td><td rowspan="2">Stock Code</td><td rowspan="2">Currency</td><td rowspan="2">Last price</td><td colspan="4">PE (fiscal year)</td><td colspan="4">PB (fiscal year)</td><td>ROE(%)</td></tr><tr><td>18A</td><td>19A</td><td>20F</td><td>21F</td><td>18A</td><td>19A</td><td>20F</td><td>21F</td><td>20F</td></tr><tr><td>International Listed aluminum companies</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Alcoa Inc</td><td>AA US</td><td>USD</td><td>7.41</td><td>5.5</td><td>n.a.</td><td>n.a.</td><td>n.a.</td><td>0.2</td><td>0.3</td><td>0.4</td><td>0.4</td><td>(23.1)</td></tr><tr><td>Norsk Hydro Asa</td><td>NHY NO</td><td>NOK</td><td>21.70</td><td>10.4</td><td>n.a.</td><td>23.2</td><td>10.7</td><td>0.5</td><td>0.6</td><td>0.6</td><td>0.5</td><td>(2.2)</td></tr><tr><td>Aluar Aluminio</td><td>ALUA AR</td><td>ARS</td><td>23.40</td><td>31.7</td><td>9.7</td><td>10.5</td><td>6.1</td><td>2.4</td><td>2.4</td><td>n.a.</td><td>n.a.</td><td>24.7</td></tr><tr><td>Nippon Light Metal Holdings</td><td>5703 JP</td><td>JPY</td><td>164.00</td><td>5.6</td><td>4.9</td><td>9.5</td><td>7.0</td><td>0.6</td><td>0.5</td><td>0.5</td><td>0.5</td><td>11.4</td></tr><tr><td>Hindalco Industries Ltd</td><td>HNDL IN</td><td>INR</td><td>109.85</td><td>4.0</td><td>4.5</td><td>5.2</td><td>6.5</td><td>0.4</td><td>0.4</td><td>0.4</td><td>0.4</td><td>9.8</td></tr><tr><td>National Aluminium Co Ltd</td><td>NACL IN</td><td>INR</td><td>29.95</td><td>4.3</td><td>3.3</td><td>74.9</td><td>99.8</td><td>0.6</td><td>0.5</td><td>n.a.</td><td>n.a.</td><td>16.5</td></tr><tr><td>Simple Average</td><td></td><td></td><td></td><td>10.3</td><td>5.6</td><td>24.6</td><td>26.0</td><td>0.8</td><td>0.8</td><td>0.5</td><td>0.4</td><td>6.2</td></tr><tr><td>Weighted Average</td><td></td><td></td><td></td><td>9.1</td><td>5.3</td><td>18.6</td><td>14.8</td><td>0.6</td><td>0.6</td><td>0.5</td><td>0.5</td><td>3.3</td></tr><tr><td>PRC listed aluminum companies</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Aluminum Corp Of China Ltd-A</td><td>601600 CH</td><td>CNY</td><td>2.90</td><td>69.0</td><td>78.4</td><td>58.0</td><td>31.5</td><td>0.9</td><td>1.0</td><td>0.9</td><td>0.8</td><td>1.3</td></tr><tr><td>Shandong Nanshan Aluminum-A</td><td>600219 CH</td><td>CNY</td><td>2.10</td><td>12.8</td><td>15.0</td><td>13.1</td><td>17.5</td><td>0.7</td><td>0.6</td><td>0.6</td><td>0.6</td><td>4.2</td></tr><tr><td>Henan Shenhuo Coal & Power-A</td><td>000933 CH</td><td>CNY</td><td>4.19</td><td>32.2</td><td>6.9</td><td>12.1</td><td>6.9</td><td>1.3</td><td>1.0</td><td>n.a.</td><td>n.a.</td><td>n.a.</td></tr><tr><td>Jiangsu Asia Pacific Light-A</td><td>002540 CH</td><td>CNY</td><td>4.29</td><td>14.5</td><td>16.2</td><td>n.a.</td><td>n.a.</td><td>1.1</td><td>1.1</td><td>n.a.</td><td>n.a.</td><td>6.9</td></tr><tr><td>Simple Average</td><td></td><td></td><td></td><td>32.2</td><td>29.1</td><td>27.8</td><td>18.6</td><td>1.0</td><td>0.9</td><td>0.7</td><td>0.7</td><td>4.1</td></tr><tr><td>Weighted Average</td><td></td><td></td><td></td><td>44.8</td><td>48.1</td><td>36.1</td><td>22.8</td><td>0.9</td><td>0.9</td><td>0.6</td><td>0.6</td><td>2.4</td></tr><tr><td>HK listed aluminum companies</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Aluminum Corp Of China Ltd-H</td><td>2600 HK</td><td>HKD</td><td>1.67</td><td>33.5</td><td>39.8</td><td>23.9</td><td>13.8</td><td>0.5</td><td>0.5</td><td>0.5</td><td>0.4</td><td>1.3</td></tr><tr><td>China Hongqiao Group Ltd</td><td>1378 HK</td><td>HKD</td><td>3.54</td><td>4.8</td><td>4.4</td><td>4.9</td><td>4.1</td><td>0.4</td><td>0.4</td><td>0.4</td><td>0.4</td><td>9.9</td></tr><tr><td>China Zhongwang Holdings Ltd</td><td>1333 HK</td><td>HKD</td><td>1.99</td><td>2.8</td><td>4.1</td><td>n.a.</td><td>n.a.</td><td>0.3</td><td>0.3</td><td>n.a.</td><td>n.a.</td><td>8.9</td></tr><tr><td>Xingfa Aluminium Holdings</td><td>98 HK</td><td>HKD</td><td>6.36</td><td>4.5</td><td>3.9</td><td>n.a.</td><td>n.a.</td><td>0.9</td><td>0.8</td><td>n.a.</td><td>n.a.</td><td>21.9</td></tr><tr><td>Simple Average</td><td></td><td></td><td></td><td>11.4</td><td>13.0</td><td>14.4</td><td>8.9</td><td>0.5</td><td>0.5</td><td>0.4</td><td>0.4</td><td>10.5</td></tr><tr><td>Weighted Average</td><td></td><td></td><td></td><td>19.6</td><td>22.9</td><td>16.5</td><td>10.0</td><td>0.4</td><td>0.5</td><td>0.4</td><td>0.4</td><td>5.6</td></tr><tr><td>HK listed nonferrous companies</td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Jiangxi Copper Co Ltd-H</td><td>358 HK</td><td>HKD</td><td>7.65</td><td>9.1</td><td>9.5</td><td>11.9</td><td>9.4</td><td>0.5</td><td>0.4</td><td>0.5</td><td>0.4</td><td>4.8</td></tr><tr><td>Mmg Ltd</td><td>1208 HK</td><td>HKD</td><td>1.42</td><td>21.3</td><td>n.a.</td><td>473.3</td><td>17.1</td><td>1.2</td><td>1.5</td><td>1.4</td><td>1.3</td><td>(20.3)</td></tr><tr><td>China Molybdenum Co Ltd-H</td><td>3993 HK</td><td>HKD</td><td>2.32</td><td>9.3</td><td>22.7</td><td>22.7</td><td>17.6</td><td>1.1</td><td>1.1</td><td>1.1</td><td>1.1</td><td>4.5</td></tr><tr><td>United Co Rusal Plc</td><td>486 HK</td><td>HKD</td><td>2.67</td><td>3.0</td><td>5.4</td><td>3.8</td><td>3.4</td><td>1.0</td><td>0.8</td><td>0.7</td><td>0.6</td><td>16.1</td></tr><tr><td>Simple Average</td><td></td><td></td><td></td><td>10.7</td><td>12.5</td><td>127.9</td><td>11.9</td><td>0.9</td><td>0.9</td><td>0.9</td><td>0.8</td><td>1.3</td></tr><tr><td>Weighted Average</td><td></td><td></td><td></td><td>8.6</td><td>13.9</td><td>45.9</td><td>12.2</td><td>0.9</td><td>0.9</td><td>0.9</td><td>0.8</td><td>5.7</td></tr></table>

Source: Bloomberg, Guotai Junan International.