CICC has released a research report outlining three primary criteria for selecting stocks within the electrolytic aluminum sector. First, companies with a high capacity-to-market-cap ratio exhibit greater earnings elasticity when aluminum prices rise. Second, firms possessing the capability for overseas expansion demonstrate stronger growth potential. Third, given that alumina prices are currently near a bottom, priority should be given to companies with high alumina self-sufficiency rates, especially if potential production halts, anti-internal competition policies, or policy disruptions in Guinea's mining sector materialize. The firm has assigned CHINAHONGQIAO (01378) an "Outperform" rating, raising its target price from HK$29.29 to HK$42.79. Other recommended stocks, all rated "Outperform," include CHINAHONGQIAO, Nanshan Aluminum International H-shares (02610 / target price HK$77.76), Nanshan Aluminum A-shares (600219.SH / target price RMB 7.25), Aluminum Corp. of China (02600 / target price HK$17.04), Tianshan Aluminum (002532.SZ / target price RMB 22.67), and Huatong Wire & Cable.
Chinese aluminum enterprises are comprehensively accelerating their overseas expansion. Constrained by domestic bauxite shortages and the production cap on electrolytic aluminum implemented since 2017, Chinese aluminum companies are rapidly accelerating their expansion into Southeast Asia, Africa, and the Middle East. Pioneering companies venturing abroad will establish first-mover advantages by securing positions in resource and energy-rich regions. Regarding alumina, companies like CHINAHONGQIAO are successively establishing operations in low-cost regions, primarily Indonesia. In terms of mining, bauxite development activity in Guinea is high; according to ATK, Guinea's bauxite production is projected to reach approximately 170 million tons by 2025, involving about 20 active companies or groups. Currently, major Chinese participants in Guinea's mining market include the Winning Consortium (CHINAHONGQIAO), Aluminum Corp. of China, and Tianshan Aluminum. Based on data from ATK and CRU, the Winning Consortium (CHINAHONGQIAO) is expected to be the largest bauxite producer in Guinea by 2025, with an output of 71 million tons.
China's aluminum industry benefits from rising aluminum prices, with companies boasting a high capacity-to-market-cap ratio experiencing larger gains. All electrolytic aluminum companies stand to benefit from increasing aluminum prices. However, companies with a higher capacity-to-market-cap ratio experience a faster compression of their valuation multiples, leading to potentially greater share price appreciation. The report categorizes CHINAHONGQIAO and Yunnan Aluminum, which have high valuation elasticity (capacity-to-market cap ratio >0.5), as the "excess return" group. Tianshan Aluminum, Shenhuo Co., and Nanshan Aluminum, with lower valuation elasticity (ratio <0.4), form the comparison group. Analysis shows that during periods of rising aluminum prices, the excess returns of the high-elasticity group largely move in tandem with the price increase. From an alumina perspective, once a company's self-sufficiency exceeds 100%, alumina becomes an internalized cost for its electrolytic aluminum production. Consequently, price increases no longer have a negative impact; instead, they boost sales profits from any surplus alumina sold externally. Companies like Aluminum Corp. of China, CHINAHONGQIAO, and Nanshan Aluminum, with self-sufficiency rates above 100%, form the "excess return" group for alumina price increases. Yunnan Aluminum and Shenhuo Co., with lower self-sufficiency, serve as the comparison group, demonstrating that the high-self-sufficiency group's returns correlate positively with alumina prices. Regarding power costs, companies with a high proportion of self-owned power plants purchasing market-priced coal face rising costs when coal prices increase. In contrast, companies with low self-generation rates or those located in Xinjiang, where local coal prices are less volatile, are less sensitive to coal price fluctuations. CHINAHONGQIAO and Nanshan Aluminum, with high self-power generation ratios, are identified as the "excess return" group during coal price declines. Aluminum Corp. of China, Tianshan Aluminum, and Yunnan Aluminum, with lower self-generation or less volatile purchased coal costs, form the comparison group, showing that the former group benefits more significantly when coal prices fall.
The report is bullish on aluminum prices and expanding per-ton aluminum profits, anticipating a re-rating opportunity for the electrolytic aluminum sector. Due to domestic production caps, earnings elasticity is another critical investment metric for electrolytic aluminum companies. CHINAHONGQIAO, Yunnan Aluminum, and Zhongfu Industrial are identified as having relatively high valuation elasticity within the sector and were also among the top performers in terms of share price appreciation for the full year 2025, with gains of 177%, 134%, and 171% respectively. The firm believes the supply-demand gap for electrolytic aluminum will continue to widen, and coupled with resonance from globally accommodative fiscal and monetary policies, aluminum prices are expected to reach new highs consistently. Considering that cost-side pressures are likely to remain low, per-ton aluminum profits are anticipated to widen further as prices climb. Even at current price levels, the average valuation multiple for electrolytic aluminum companies in 2026 remains compressed around 10x. The report argues there is significant potential for upward re-rating during this price appreciation cycle, suggesting the sector could experience a Davis Double Click. Risks include fluctuations in product prices; overseas capacity additions exceeding expectations; demand falling short of forecasts; and geopolitical disruptions.
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