Company Profile

Jiangsu Alcha Aluminium (002160: SZ) manufactures and markets pure aluminium foil,hydrophilic-coated aluminium foil, and aluminium scrip coil.

Event

Jiangsu Alcha Aluminium (the company) announced lately that it plans to enter the“hospital lustration service” and “medical device” segments via equity investment: 1)The company will take over 80% of Sichuan Chenxi with CNY 10.6 million; thecompany's shareholders had reached a consensus to increase Jiangsu AlchaAluminium's registered capital by CNY 10 million in order to keep its equity ratiounchanged. 2) The company will acquire a 25% stake in YOUSHI Medical Technology(Suzhou) (transliterated) with CNY 40 million.

At the same time, Jiangsu Alcha Aluminum also announced its wining of bid for arefrigeration aluminum foil project from Qingdao Haier, with a worth of CNY 300million-CNY 350 million. Entering “hospital lustration service” and “medical devices”business marks a significant step towards the company's “aluminum + healthcare”strategy. We expected the 3-year private placement to boost Jiangsu Alcha's capitaland to speed up its business transformation.

Comment

Acquisition of Sichuan Chenxi enables the company to expand its purificationbusiness into hospitals. Sichuan Chenxi is primarily engaged in designing, consultingand instalment for medical purification systems, medical gas supply systems, industriallustration systems and civilian-use central air condition systems. Hospitals are its keyclients. Taking over Sichuan Chenxi enable Jiangsu Alcha Aluminium to expand currentpurification business from pharmaceutical companies to hospitals. Also, this is part ofthe efforts to enlarge the company's market share and to expand its influence inpurification business. Access to Sichuan Chenxi's resources will give Jiangsu AlchaAluminium quick entry to lustration engineering market.

Equity investment in YOUSHI Medical Technology (Suzhou) provides Jiangsu AlchaAluminium with opportunities to venture into the orthopaedic medical deviceindustry. YOUSHI Medical Technology (Suzhou) mainly focuses on the development,registration and production of orthopaedic medical devices. Its products include orthopedicjoints, injuries, spine and sports medicines. YOUSHI is in the process of acquiring US'Precifit Medical Ltd., which is applying for FDA certificate and is estimated to get officialapproval by mid-2016. YOUSHI will apply for CFDA certificate in late-2016. We believeJiangsu Alcha Aluminium's taking over of YOUSHI Healthcare is of significant importanceto its “aluminium+ healthcare” strategy, giving the company an opportunity to venture intoorthopaedic medical consumable material industry. YOUSHI has pledged to makecumulative net profit of no less than CNY 10 million in 2017/2018. This will give thecompany stronger support to delve into medical device exploration.

Winning Bid for Refrigeration Aluminium Foil Project from Qingdao Haier This airconditioner aluminum foil order from Qingdao Haier is worth CNY 300 million and this willfurther consolidate Jiangsu Alcha Aluminium's position in the air-conditioner aluminium foilmarket. This processing fee for the order is estimated at CNY 100 million, nearly 60% ofQingdao Haier's annual demand. With the “aluminium + healthcare” strategy, the companyhas fine-tuned the aluminium foil material business. Key emphasis is now placed on thedevelopment of large, premium downstream clients, in a bid to increase profitability.

The 3-year private placement is about to be accomplished. The company isaccelerating its business transformation. Jiangsu Alcha Aluminium's 3-year privateplacement plan has obtained the CSRC's approval and will soon be completed. The newlyraised CNY 1.08 billion will boost the company's capital and support its development under“aluminium + healthcare” strategy. As a listed company, Jiangsu Alcha Aluminium willmake full use of its resources and develop integrated healthcare businesses throughcooperation with Shanghai Macroprocess Lustration Technology. At the same time, webelieve Jiangsu Alcha Aluminium will actively set up new business in other healthcaresegments by relying on Jiuding Group's resource and background.

Earnings Forecast and Investment Recommendations: We estimate Jiangsu AlchaAluminium's 2015/2016/2017 net profit at CNY 114 million/ CNY 204 million/CNY 245million The EPS is forecasted at CNY 0.18/CNY 0.32/CNY 0.39. Considering thecompany's commitment towards medical healthcare industry, we maintain “Outperform”rating for the company.

Potential Risk: Processing fees for aluminium plate products may be lower thanestimation. Transformation to healthcare industry might fail expectation.