Rusal shares drop on worse-than-expected earnings

HONG KONG （Reuters） - Russia's United Company RUSAL （0486.HK: Quote）, the world's top aluminium maker, reported a worse-than expected 55% fall in quarterly net profit on higher finance costs, knocking its shares down as much as 9 percent.

RUSAL （RUAL.PA: Quote）, which listed in Hong Kong in January, said it made aggressive debt repayments and forecast higher aluminium prices, blaming the weaker-than-expected results on foreign exchange losses.

Disappointment with the results sent Rusal shares to a three-week low of HK$9.58, putting them track for their biggest one-day fall since the listing.

"The expectation all over the market was high and if you don't beat the expectation, people will sell （the stock）," said Alexander Latzer, an analyst at Daiwa Securities Markets.

Rusal shares have recovered about 40 percent from a low of HK$6.72 hit in late June amid worries about the company's heavy debt position.

A reduction in the trading lot size of RUSAL shares have helped the share price recover, but it remains well below the initial public offering price of HK$10.8 in January.

RUSAL, the world's biggest aluminium maker by sales volume, posted a July-September net profit of $29 million, versus $64 million a year earlier and lagging an average forecast of $318 million from eight analysts polled by Reuters.

Stripping out the foreign currency translation differences, the net profit should be $419 million, RUSAL said.

RUSAL's finance expenses in the third quarter swelled to $699 million from $276 million a year earlier.

DEBT REPAYMENTS

RUSAL said it made debt repayments of $309 million in the third quarter and was ahead of its 2010 debt reduction targets by 73 percent. It added that it has already met 81 percent of its 2011 debt reduction targets.

"Revenue was in line with forecasts and EBITDA was about 10 percent lower, and that just reflects a little bit of margin pressure," said Andrew Driscoll, an analyst at CLSA Ltd.

"What is encouraging, though, is that they continue to de-gear so they are well ahead of their repayment schedule. This means that their interest margin is coming down, so that will have a positive impact on earnings," he said.

Analysts said the earning momentum for RUSAL was strong towards the end of the year, with the aluminium spot price MAL3 currently 15 percent higher than the third quarter average.

RUSAL performed a bit better than Chinese rival, Aluminum Corp of China （2600.HK: Quote） （601600.SS: Quote）, which reported a third quarter loss last month on a supply glut.

RUSAL gave an upbeat forecast for the global aluminium market going into 2011.

"Several factors point to encouraging prospects for the aluminium market: the revival of the domestic market, increased economic activity in Germany, South America and Asia, spot premiums reaching an all-time high, partly due to China becoming a net importer of aluminium," RUSAL said in a statement.

It added that a projected reduction in inventories by less than 4-5 percent by the end of the year was also helping to support the market.

RUSAL said it would further cut its trading lot size to 1,000 shares from a previous 6,000, the second such reduction in recent months, from Dec 13 to make its shares more accessible to smaller investors. （Editing by Ken Wills and Dhara Ranasinghe）