Morgan Stanley has a positive outlook on CHALCO's proposed acquisition of Brazilian aluminum assets and has given it an "Overweight" rating

Morgan Stanley published a research report indicating that China Aluminum (02600.HK) and Rio Tinto's newly established joint venture company will acquire a 68.59% stake in Brazil Aluminum, with China Aluminum holding 67% of the joint venture. The total transaction price is approximately RMB 6.39 billion (the same below), of which China Aluminum needs to pay about RMB 4.2 billion.

The report pointed out that Brazil Aluminum operates 2 million tons of bauxite, 800,000 tons of alumina, 430,000 tons of primary aluminum, and 215,000 tons of processing capacity in Brazil. The transaction price corresponds to approximately RMB 14,860 per ton (about USD 2,140 per ton), while the current aluminum price is USD 3,181 per ton. Assuming the acquisition is completed, according to Brazilian law, the joint venture will initiate a mandatory tender offer for all remaining shares of Brazil Aluminum and has proposed to subsequently privatize and delist it. The transaction is still subject to approval from domestic and foreign regulatory authorities.

Morgan Stanley holds a positive view on China Aluminum's overseas growth, believing that if the transaction is completed, considering the strict capacity control in the Chinese market, this acquisition will open up growth space for overseas green aluminum capacity for China Aluminum. At the same time, the bank expects that under the backdrop of tight industry fundamentals and supportive macro environment, aluminum prices will remain high, coupled with capacity growth, which is expected to bring profit upside potential for China Aluminum. The bank set a target price of HKD 15.1 for China Aluminum, with a rating of "Overweight."