We maintained our Buy rating on KGHM yesterday, following the announcement of management guidance for 2007, targeting net earnings of PLN 2.98bn on sales revenues of PLN 10.6bn, versus our previous expectations for PLN 3.46bn and PLN 11.9bn respectively. In comparison to the assumptions of management, we remain more optimistic with on the outlook for the copper price in 2007, anticipating a less dramatic decline in the metal’s price, as KGHM forecasts an average copper price of USD/t 5,700 (spot) for 2007, which is 10.1% below our forecast at USD/t 6,338.
However, we have made several adjustments to our forecasts to account for company guidance for lower production volumes, higher capex, etc. and we have extended our explicit forecasting period into 2009. We have cut our near-term earnings forecasts for KGHM, by 1.4% to PLN 3,393m (+48% y/y) for 2006 and 9.2% to PLN 3,142m (-7.4% y/y) for 2007. Our forecast changes have driven a 5.8% cut in our fair value estimate to PLN 98.81 per share, implying 11.1% upside.