31. May 2021 | 11:45 CET
BYD, Kodiak Copper, Xiaomi - Copper: Buy or cash in?
The demand for copper will continue to grow. These are the findings of the recently published study by the International Copper Association (ICA). The ICA predicts that by 2030, more than 250,000 tons of copper per year will be used as part of the windings in electric traction motors. But copper is also in demand in many other industries. Demand exceeding supply or supply bottlenecks can make the raw material more expensive overnight at any time. For this reason, today, we take a look at a budding copper producer. Of course, large demanders such as BYD or Xiaomi must not be missing in the consideration. After all, our everyday companion, the smartphone, contains 15% copper. Let us surprise you with three exciting investment ideas.
time to read: 4 minutes by Carsten Mainitz
"[...] We knew the world was rapidly electrifying and urbanising and needing significant amounts of copper to do so. [...]" Nick Mather, CEO, SolGold PLC
BYD CO LTD - Old Swede
Chinese manufacturer BYD (Build Your Dreams) is one of the world's leading battery and accumulator manufacturers. With electrically powered buses and coaches, BYD has been active in Europe for some time and continuously reports major orders. A few days ago, a major order from Sweden for 79 purely electric buses was announced. Delivery of the vehicles is scheduled to begin at the end of this year. The Group recently announced its intention to enter the European market for electric cars this year. According to the Company, the launch will occur in Norway, as the country is the most advanced market in Europe in terms of market maturity and landing infrastructure.
According to media reports, the Group will make the opening move with the BYD Tang, an electrically powered SUV. The Han sedan, which will launch in China in June with new battery technology, is also expected to be introduced in Europe at a later date.
After many analysts were not so enthusiastic about the published Q1 figures, experts consider the title reasonably valued overall. Those who, like major shareholder Warren Buffett, believe in the long-term success of the Chinese Company's expansion strategy will use the phase of skepticism to get in. BYD currently weighs in at USD 14.3 billion and has a moderate 2022 P/E ratio of 16.
KODIAK COPPER CORP - Buy
Shares of Canadian copper explorer Kodiak Copper have multiplied in recent months on the back of a sharp rise in copper prices. The upward movement stopped at around CAD 3.30 last year. The share is currently available for CAD 1.96, and the Company is valued at CAD 93 million. Of course, the copper price has boosted the share of the Canadians, but in essence, it was positive project developments. And it proved once again that investors are well-advised to look at the companies' leaders and their success stories when tracking down successful investments. For Kodiak, we can only state: Chris Taylor has delivered again. Taylor has been internationally known since the gold discovery with Great Bear Resources. The stock multiplied from a few cents to over CAD 10 in just a few years. Taylor is chairman at Kodiak.
A huge copper discovery at the MPD gold project sent the shares soaring last year, and industry giant Teck Resources also bought into Kodiak, excited by the results. A fully funded 30,000m drill program has now been underway at MPD since March 2021, which should provide a steady flow of news in the near future. The MPD copper-gold porphyry project is located in southern British Columbia. However, investors should not forget Kodiak's Mohave copper-molybdenum-silver porphyry project in Arizona. This project is in close proximity to the world-class Bagdad mine, owned by Freeport-McMoRan.
XIAOMI CORPORATION - Number 3 in the global cell phone market, but there is still more to come
The Chinese Company has demonstrated impressive growth since its founding in 2010, which is likely to continue dynamically in light of recent reports. The Chinese electronics manufacturer is now one of the largest smartphone manufacturers in the world. A few days ago, it was reported that the technology group had been removed from the blacklist on which the Trump administration had placed several companies from the People's Republic. The US accused these companies of proximity to the Chinese military and intelligence services. This assessment has now been overturned by a US court, which means that holding, buying and selling Xiaomi shares is once again permitted for US citizens.
The recently presented quarterly figures are impressive. Xiaomi is still the No. 3 Company in the world, behind the likes of Apple and Samsung. But Xiaomi is more than just a phone maker. To be successful internationally as a technology company, it often makes business and economic sense to offer an entire "ecosystem" to customers. For customers, this brings the advantage of "usability," i.e. devices and software can "communicate" with each other more easily. For the Group, it increases customer loyalty and cross-selling enormously. It is not without reason that Xiaomi has made customer satisfaction its top priority. Thus, hardware (e.g. notebooks) or other devices (e.g. smartwatches) also play a significant role, which are connected by their Internet of Things (IoT) platform. The smart home sector is also a growth area for Xiaomi. The Company operates the world's leading consumer AIoT (AI+IoT) platform with 351.1 million smart devices connected to its platform - this does not even include smartphones and laptops! The term AI stands for Artificial Intelligence or artificial intelligence. Part of AI is also that a software or system learns to predict future decisions based on past decisions.
In the first quarter of 2021, both total revenue and adjusted net income reached record levels. The AIoT platform enables rapid and global scaling. Overall, consolidated revenue increased 55% to USD 75 billion. Net income grew about three times as fast, up 164% to approximately USD 950 million. The data came in above analysts' estimates, leading to some upgrades to the stock. Currently, the Company is valued at HKD 28.60 per share, with a market capitalization of USD 92 billion. This is just about 1.5 times expected 2022 sales. The 2022 P/E ratio of 25 is also not too high for the Company, given its future prospects. The Chinese still have many plans: in March 2021, the Group announced its entry into the smart electric vehicle business. At the moment, 35 analysts are following the stock and, on average, give the share a potential of around 13%. Since the quarterly data publication was only a few days ago, investors are using the time to buy until the analysts' upgrades or new buy ratings arrive.