Chalco (ADR: ACH, Hong Kong code 2600) is down 0.27% at HK$3.77 (ADR $12.15) on top of its 3.8% fall Tuesday, after it issued a FY11 profit warning. JP Morgan says Chalco’s run of four straight consecutive quarterly profits apparently didn’t last, as Chinese smelters are still keeping production on-line. The house says that given Chalco’s high gearing and weak cash generation, “2012 remains a challenging one for the company.” It adds that while there may be limited downside to the current weak aluminium prices, given the domestic industry’s high cost base, it believes “upside potential is also lacking.” Hence it keeps a Neutral rating with a HK$4.10 target.

Daiwa continues to forecast a loss in FY12 and sees further downside to market EPS expectations. “We think Chalco faces challenges that are not only related to weak quarterly earnings, but also structural, involving the continued erosion of its competitive position by new low-cost capacity,” Daiwa says and adds that fundraising is needed to support working capital and spending on growth projects. It keeps Chalco at Underperform with a HK$3.25 target.