UBS maintains a Buy rating on Jiangxi Copper but cuts target price to HK$60

Overview

This report is UBS's company research note following Jiangxi Copper's NDR. It focuses on the reasons earnings missed expectations, changes in tax rates, impairments, sulfuric acid prices, TC contracts, 2026 production guidance, dividend policy, and the target price adjustment. The report keeps a Buy rating on Jiangxi Copper but lowers the target price from HK$67 to HK$60.

Core views

UBS believes the recent earnings pressure is not mainly due to a single deterioration in operating trends, but rather to a higher tax-rate benchmark and one-off impairments. Looking ahead to 2026, a tax rate of around 25%, a lower share of long-term TC contracts, weaker TC spot assumptions, and tighter copper concentrate supply are the main reasons for the downward earnings revisions. Even so, strong sulfuric acid pricing continues to support smelting profitability, with the smelting business net margin at around 10-15% in 2025; the company also has a stable dividend policy with a payout ratio target of 30-40%, depending on earnings.

Analysis framework

Based on NDR management discussions, updated operating guidance, revised tax assumptions, TC contract and spot price assumptions, sulfuric acid output and pricing contributions, and UBS Global's updated earnings forecasts for First Quantum, the report revises Jiangxi Copper's earnings forecasts and target price.

Methodology notes

• Valuation methodsSOTP

  sum-of-the-parts valuation

  The report says Jiangxi Copper's target price is based on the SOTP method and was lowered to HK$60 after factoring in exchange rates.

• earnings_forecastforecast_revision

  earnings forecast revision

  UBS incorporated the new operating updates, production guidance, tax rate changes, lower long-term TC contract share, TC spot price assumptions, and First Quantum earnings forecast updates into the model.

• return_definitionforecast_stock_return

  forecast stock return

  The report defines forecast stock return as the expected share price upside over the next 12 months plus dividend yield.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Jiangxi Copper 0358.HK

  core coverage name

  Strengths

  Owns China's largest copper mine, Dexing Copper Mine, with operations spanning copper mining, smelting and processing, and sulfuric acid chemicals; strong sulfuric acid prices support smelting profitability; dividend policy is stable.

  Weaknesses

  The tax-rate benchmark has risen to about 25%, the share of long-term TC contracts has fallen, copper concentrate supply is tight, and 2026/27 earnings forecasts were lowered.

  Comparison

  The report notes that the long-term TC contract share has fallen from roughly 90% previously to about 80% in 2025, and the stock currently trades at about 9x 2026e PE.

  Risks

  Copper price volatility, worsening TC/RC, regulatory changes, production interruptions, overseas political risk, exchange-rate risk, and slower-than-expected ramp-up of new mines.

• 600362.SS

  A-share listed security reference for the same company

  Strengths

  Fundamentally linked to Jiangxi Copper.

  Weaknesses

  This report's rating and target price primarily apply to 0358.HK.

  Comparison

  The report calculates market cap using combined A-share and H-share shares outstanding multiplied by the current share price.

  Risks

  Same company-level operating and industry risks as Jiangxi Copper.

• First Quantum Minerals Ltd.

  asset related to model assumptions

  Strengths

  UBS Global's earnings forecast updates are incorporated into Jiangxi Copper's forecast revisions.

  Weaknesses

  The report does not cover it as a main coverage name.

  Comparison

  Its valuation-risk language is separate from the main Jiangxi Copper thesis.

  Risks

  Cobre Panama equity outcome, liquidity, capex cuts, potential asset sales, commodity price volatility, and exchange-rate volatility.

Key data

• 12-month ratingBuyThe report maintains a Buy rating on Jiangxi Copper.
• Target priceHK$60.00Previous HK$67.00, down by about 11%.
• 2026/27 earnings forecast revision-14% / -11%Mainly reflects operating updates, tax rate changes, lower TC assumptions, and First Quantum forecast updates.
• 2026e valuation9x peThe report says Jiangxi Copper currently trades at about 9x 2026e PE.
• Tax rate assumptionabout 25%Management said the tax rate benchmark shifted from 15% to 25%; UBS uses about 25% as the base case.
• 2026 sulfuric acid production guidance6.5mtLower than 7.0mt in 2025, mainly due to changes in feedstock sources and tight copper concentrate supply.
• Long-term TC contract mixabout 80% in 2025Previously about 90%; if spot TC continues to worsen, it may be difficult to maintain a high ratio of long-term contracts.
• Smelting business net marginabout 10-15%In 2025, still supported by strong sulfuric acid contribution amid weak TC.
• Dividend policy30-40% payout ratio targetDepends on earnings.
• Forecast stock return71.2%Includes 67.4% forecast share price upside and 3.8% forecast dividend yield.

Impact & implications

The short-term impact is lower earnings forecasts and a lower target price, and the market needs to reassess the pressure on margins from tax normalization, TC declines, and tight raw material supply. Medium term, if sulfuric acid prices remain strong and impairments do not expand further, smelting profitability and stable dividends could still support the investment case. The lower target price but unchanged Buy rating indicates that UBS believes the negative assumptions have already been partly reflected in the model, while the current valuation remains attractive.

Risks

• Copper prices and exchange rates may deviate materially from expectations.
• Regulatory changes, environmental constraints, and production interruptions may affect mine and smelting projects.
• Weaker end-market demand from real estate construction, power grid equipment, appliances, machinery, and transportation may drag on copper demand.
• Overseas political risks and new mine ramp-ups may be faster or slower than expected.
• Declining TC/RC may compress smelting margins; the report says the current TC level of around negative US$60/t could imply losses.
• A persistently high tax rate or further increases could continue to pressure earnings.
• A decline in sulfuric acid prices could weaken support for smelting profits.

What to watch

• The actual FY2026 tax rate, especially whether Q1 is close to 25%.
• Whether the impairment related to Chengmenshan Copper Mine has indeed been fully recognized, as management claims.
• The trend in spot TC prices and whether the long-term TC contract mix can be maintained.
• Spot sulfuric acid prices, the cap on fertilizer-related sales, and whether the 2026 6.5mt production guidance is achieved.
• Tightness in copper concentrate supply and changes in feedstock sources.
• Whether dividend payouts stay within the 30-40% target range.
• Whether 2026/27 EPS matches UBS's lowered forecasts of Rmb3.38 and Rmb4.38.