Bank of America Securities has reiterated its constructive stance on aluminum industry leader China Hongqiao (01378), maintaining a "Buy" rating and a target price of HK$30 after reviewing the company's recently disclosed interim results for fiscal 2026.
The brokerage issued its latest research note on August 24, following the company's mid-year earnings announcement released on August 21. For the first half of the year, China Hongqiao reported revenue of RMB 87.506 billion, up 8% year-on-year, while net profit attributable to shareholders surged 39.2% to RMB 17.210 billion, aligning with the group's earlier positive profit alert.
According to the Bank of America report, the earnings growth was primarily fueled by higher aluminum prices. The average selling price of aluminum alloy climbed 18.7% year-on-year to RMB 21,192 per tonne. The deep-processed products segment also delivered a standout performance, with sales volume jumping 23.2% to 444,000 tonnes and revenue expanding 40% compared to the prior-year period. The group's gross margin widened by 5.8 percentage points to 31.5%, with the aluminum alloy business margin leaping from 25.2% to 38.5%.
The company's balance sheet continued to improve, while shareholder returns remained robust. Operating cash inflows reached RMB 22.1 billion in the first half, reflecting strong cash generation. Bank borrowings declined 17.4% from the end of last year to RMB 35.9 billion, and the debt-to-asset ratio improved to 40.5% from 42.2%. During the reporting period, the group repurchased and cancelled 159 million shares for HK$5.2 billion, while its controlling shareholder added 41.5 million shares to their stake, underscoring management's confidence in the business outlook.
Looking ahead, management holds a constructive view on aluminum fundamentals, citing persistent global supply tightness alongside resilient demand from power infrastructure, energy storage, and export markets. Capital expenditure fell notably to RMB 3.7 billion in the first half of 2026, yet the company continues to push forward with its green aluminum project in Yunnan province, capacity expansion for lightweight materials, and investments tied to the Simandou project. Additionally, affiliated company Shandong Hongqiao Aluminum Industry Holding (002379.SZ) disclosed a private placement plan on July 31, aiming to raise up to RMB 12 billion to support renewable energy development, downstream aluminum processing operations, and balance sheet optimization.
Bank of America's HK$30 target price is derived from a discounted cash flow valuation model that assumes a weighted average cost of capital of 9.0% and a terminal growth rate of 1%. The current share price implies a 2026 forecast price-to-earnings ratio of approximately 6.5 times, with a dividend yield of roughly 10%. The bank's buy thesis is underpinned by its constructive outlook on aluminum prices, the attractive dividend yield, ongoing share buybacks providing price support, and a projected P/E of around 8 times for 2027.
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