Deutsche Bank has resumed research coverage on CHINAHONGQIAO (01378), one of the world's largest aluminum groups, assigning a "Buy" rating with a target price of HK$33.
The report notes that despite the company's share price falling this year due to negative sentiment in the Asian aluminum sector, its fundamentals are experiencing a significant inflection point in free cash flow (FCF), making the current valuation highly attractive.
Deutsche Bank's analysis suggests that after two decades of rapid expansion, CHINAHONGQIAO has entered a mature operational phase. Its strategic focus has shifted to maximizing cash generation, maintaining stable aluminum output, and gradually relocating capacity to Yunnan Province to leverage renewable energy. The company's expected EV/EBITDA for 2027 is only 3.8 times, with a free cash flow yield of 16%. More notably, over the next five years, the company is expected to return over 60% of its current market capitalization through dividends and share buybacks. As the balance sheet strengthens and cash returns grow, CHINAHONGQIAO is likely to attract a broader base of global investors.
The report also highlights that the Middle East conflict previously pushed LME spot aluminum prices to a peak of around $3,850 per tonne in early June, with spot premiums also rising sharply. However, following a preliminary ceasefire between the US and Iran, prices have fallen back to pre-war levels (currently around $3,200 per tonne), reflecting long liquidation, faster-than-expected Gulf production resumption, and strong Chinese output. Deutsche Bank still expects the market to face a shortage in the second half of 2026, with a modest rebound in aluminum prices to around $3,300 per tonne in the fourth quarter. There is an upside risk if Middle East geopolitical tensions escalate again. Meanwhile, China's capacity ceiling of approximately 45 million tonnes per year is expected to remain largely in place, but in the second half of the year, close attention must be paid to domestic capacity dynamics and supply developments in the Gulf and Indonesia.
Comments