HONG KONG: Earnings pressure on Aluminum Corp of China Ltd, the nation's biggest producer of the metal, is "temporary" and the company's outlook is optimistic based on the company's strong home market position and advantages in overseas acquisitions, say analysts.

Investment bank Goldman Sachs said a sharp decline in earnings reflects a weak aluminum market in the second half of last year, but the firm kept a "buy" rating on the hopes of government support for energy-intensive industries.

Liu Boyang, a Shanghai-based natural resources analyst at Taifook Securities, also has a positive view of the company's prospects.

"Market demand for the metal is still weak, but as the country's largest aluminum producer, it is worth investing for the middle and long-term," said Liu.

Shares in Aluminum Corp of China (Chalco) tumbled 11.97 percent to HK$4.56 in Hong Kong trading yesterday, after a 13.8 percent gain over the last three months.

The decrease was triggered by the company's worse-than-expected full-year net profit, down 99.9 percent year-on-year, hurt by high costs and weak demand in the second half of 2008.

Chalco was one of the worst-performers in the Hong Kong bourse in 2008. It fell 73.75 percent to HK$4.08 from HK$15.54 through the year.

"A big company like Chalco won't be hurt by one or two years' weak performance. It is experienced and enjoys advantages in overseas acquisitions," said Liu.

The auto industry and property market will remain weak this year, which will not help Chalco's earnings in 2009, he added.

Chalco said its losses will extend to this quarter because of lower metal prices. The company posted a fourth-quarter loss of 2.57 billion yuan, compared with a profit of 1.49 billion yuan a year ago, according to figures derived from full-year earnings released Sunday under the mainland accounting standards.

"In light of the slackening global economic growth, significant decline in demand for aluminum and plummeting aluminum prices, the group's operation and production will face enormous difficulties and challenges in 2009," the company said in a statement to the Hong Kong stock exchange. "It is expected that the company will record a loss in its net profit for the first quarter of 2009."

Lu Yongqing, the company's vice president, said earlier that Chalco is capable of weathering the global credit crunch and economic slowdown as the company has as much as 60 billion yuan in cash reserves.

"We have between 50 billion yuan and 60 billion yuan in cash, which is sufficient to tackle the crisis. All companies are making preparations to combat the financial turmoil and economic slowdown," said Lu.

Li Zhuiyang, an analyst at CITIC Securities, said Beijing will continue to support Chalco to grow bigger, so there shouldn't be any problem in fundraising if the company needs money to invest.

(HK Edition 03/31/2009 page16)