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Equity Bottom-Up

China Mineral Resources Group / Equity Bottom-Up

<ul>
<li>China’s central government formally launched a state-owned iron ore giant to consolidate China’s massive mining investments and coordinate global purchases of steelmaking materials for the world’s largest steel producing nation</li>
<li>With registered capital of 20 billion yuan ($3 billion), China Mineral Resources Group was established Tuesday in the Xiongan New Area</li>
<li>Creation of the enterprise is seen as part of China’s long-pursued goal of enhancing its position in the global iron ore trade</li>
</ul>


China’s central government formally launched a state-owned iron ore giant to consolidate China’s massive mining investments and coordinate global purchases of steelmaking materials for the world’s largest steel producing nation
With registered capital of 20 billion yuan ($3 billion), China Mineral Resources Group was established Tuesday in the Xiongan New Area
Creation of the enterprise is seen as part of China’s long-pursued goal of enhancing its position in the global iron ore trade


China Debuts $3 Billion State Iron Ore Giant

External broker reports(aggregated public sources), Topline Securities

Topline Securities

External broker reports(aggregated public sources)

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Thematic (Sector/Industry)

<ul><li>Pakistan market is expected to continue its uptrend in 2017 given tangible gains from China Pakistan Economic Corridor (CPEC) projects and rising domestic demand leading to higher economic growth prospects. This coupled with liquidity with local investors will likely set the stage for further gains in 2017, we believe.</li><li>Pakistan market currently trades at 2017F PE of 9.6x, which is at 23% and 29% discount to Morgan Stanley Composite Index (MSCI) Frontier Markets (FM) forward PE of 12.4x and MSCI Emerging Markets (EM) forward PE of 13.6x, respectively. We are of the view that Pakistan Market PE can potentially re-rate to 10x in 2017. This would be in line with the PE witnessed during high growth period of 2005-08 when Pakistan was part of EM index.</li><li>We expect benchmark KSE-100 Index to rise to 56,000 points by Dec 2017 generating 21% returns (inclusive of dividend). Our sample companies’ profit (representing 70% of KSE-100 index) is expected to grow by 23% in 2017, compared to increase of 1% in 2016, due to 1) re-bound in oil prices and higher oil production, 2) bottoming out of interest rates, 3) higher sales of oil, fertilizer and autos and 4) increased investment in energy sector.</li><li>Resultantly, we expect market capitalization of Pakistan to cross US$100bn in 2017 (30% of GDP) vs. US$89bn now.</li><li>Among other events that can potentially impact market movement is transition to MSCI EM in May 2017, which will keep optimism high. Further, local political issues, global sell-off and delays in implementation of CPEC projects can affect local bourse in 2017, we believe.</li><li>During 2016 YTD, the KSE-100 Index is up 41% compared to relatively flat performance in 2015. This is despite foreign selling of US$267mn during the year, thanks to local liquidity where local mutual funds bought US$264mn and Non-Banking Financial Corporations (NBFC) bought US$215mn whereas Companies and Banks sold total of US$221mn. Pakistan market performance in 2016 remained exceptional compared to regional markets where MSCI FM is down 2% while MSCI EM increased 10% in 2016 YTD.</li><li>We maintain ‘overweight’ stance on Cements, Consumers/Autos, Oil &amp; Gas Marketing and Steel sectors. We expect these sectors to be prime beneficiaries of rising domestic demand and expansion activities led by CPEC. We are of the view that Banks/Insurance will continue to benefit from increased economic activity.</li><li>Our top picks for 2017, which are expected to generate above average returns, are: Habib Bank (HBL), Lucky Cement (LUCK), Pakistan State Oil (PSO), DG Khan Cement (DGKC), Sui North Gas Pipelines (SNGP), Pak Suzuki Motors (PSMC), Pak Elektron (PAEL) and Adamjee Insurance (AICL).</li></ul>

Pakistan market is expected to continue its uptrend in 2017 given tangible gains from China Pakistan Economic Corridor (CPEC) projects and rising domestic demand leading to higher economic growth prospects. This coupled with liquidity with local investors will likely set the stage for further gains in 2017, we believe.Pakistan market currently trades at 2017F PE of 9.6x, which is at 23% and 29% discount to Morgan Stanley Composite Index (MSCI) Frontier Markets (FM) forward PE of 12.4x and MSCI Emerging Markets (EM) forward PE of 13.6x, respectively. We are of the view that Pakistan Market PE can potentially re-rate to 10x in 2017. This would be in line with the PE witnessed during high growth period of 2005-08 when Pakistan was part of EM index.We expect benchmark KSE-100 Index to rise to 56,000 points by Dec 2017 generating 21% returns (inclusive of dividend). Our sample companies’ profit (representing 70% of KSE-100 index) is expected to grow by 23% in 2017, compared to increase of 1% in 2016, due to 1) re-bound in oil prices and higher oil production, 2) bottoming out of interest rates, 3) higher sales of oil, fertilizer and autos and 4) increased investment in energy sector.Resultantly, we expect market capitalization of Pakistan to cross US$100bn in 2017 (30% of GDP) vs. US$89bn now.Among other events that can potentially impact market movement is transition to MSCI EM in May 2017, which will keep optimism high. Further, local political issues, global sell-off and delays in implementation of CPEC projects can affect local bourse in 2017, we believe.During 2016 YTD, the KSE-100 Index is up 41% compared to relatively flat performance in 2015. This is despite foreign selling of US$267mn during the year, thanks to local liquidity where local mutual funds bought US$264mn and Non-Banking Financial Corporations (NBFC) bought US$215mn whereas Companies and Banks sold total of US$221mn. Pakistan market performance in 2016 remained exceptional compared to regional markets where MSCI FM is down 2% while MSCI EM increased 10% in 2016 YTD.We maintain ‘overweight’ stance on Cements, Consumers/Autos, Oil &amp; Gas Marketing and Steel sectors. We expect these sectors to be prime beneficiaries of rising domestic demand and expansion activities led by CPEC. We are of the view that Banks/Insurance will continue to benefit from increased economic activity.Our top picks for 2017, which are expected to generate above average returns, are: Habib Bank (HBL), Lucky Cement (LUCK), Pakistan State Oil (PSO), DG Khan Cement (DGKC), Sui North Gas Pipelines (SNGP), Pak Suzuki Motors (PSMC), Pak Elektron (PAEL) and Adamjee Insurance (AICL).

China

Aluminum Corporation of China Limited manufactures aluminum products. The Company offers aluminum ores, aluminum, bauxite, coal, and other products. Aluminum of China serves coal mining, logistics, and other businesses.

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Aluminum of China (601600 CH)

China Debuts $3 Billion State Iron Ore Giant

China’s central government formally launched a state-owned iron ore giant to consolidate China’s massive mining investments and...

Caixin Global

Pakistan Market Outlook 2017

Pakistan market is expected to continue its uptrend in 2017 given tangible gains from China Pakistan Economic Corridor (CPEC) projects and rising...

Topline Securities

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