Orient Securities: Focus on investment opportunities in the electrolytic aluminum sector with stable profits and high dividends. Suggestions focus on Hongqiao, China (01378)

The Zhitong Finance App learned that Orient Securities released a research report saying that as stocks of aluminum chains and processed aluminum products continue to be removed, the price of raw aluminum is expected to continue to rise, and leading companies may show higher profit elasticity; in terms of electricity costs, the market already anticipates cost optimization brought about by the decline in thermal coal prices this year, and the current sector's overall dividend ratio is still highly attractive compared to other dividend assets. It is recommended to focus on China's Hongqiao (01378).

Orient Securities's main views are as follows:

There is no advantage on the short-term demand side, and medium-term investments focus more on supply-side logic

As a result of the balance between supply and demand, inventories can be used as an indirect observation indicator for downstream demand in the electrolytic aluminum industry where supply is clearly limited. Since this year, both the social inventory of aluminum chains and the inventory of downstream subtypes of aluminum processing have continued to decline. Currently, stocks of some varieties have fallen to the lowest level in history, gradually dispelling investors' concerns about demand. As for the electrolytic aluminum sector, due to the excellent properties of aluminum itself and its good cost performance ratio, it is widely used in the industrial field, and demand in various downstream segments has disappeared, so the bank believes that the overall demand for electrolytic aluminum is less risky. On the contrary, from the perspective of industrial investment, the supply-side logic of the electrolytic aluminum sector is more important in the medium term.

Supply-side logic: Long-term stable and low-cost electricity supply is a hard constraint for the domestic and foreign electrolytic aluminum industry

Large energy consumption is a necessary condition for the electrolytic aluminum industry, and it is also necessary to meet the long-term, stable, and low-cost three commitments. Although overseas energy costs have been at a phased low level in the past two years, there is a big upward risk in the future; specific regions may be able to meet the low cost requirements of electricity in stages, but there is a problem of insufficient stability. Overall, although there have been plans for the construction of electrolytic aluminum projects overseas in the past two years, the bank believes that long-term stable and low-cost electricity supply is a hard constraint for the domestic and foreign electrolytic aluminum industry. In the medium term, the electrolytic aluminum industry is expected to maintain a good supply and demand pattern.

Profit and dividends: The supply and demand pattern guarantees continuous and stable profits. A stable dividend line is a real dividend asset

Based on the mid-term supply and demand pattern of the integrated electrolytic aluminum sector itself and the upstream and downstream links of the industrial chain, the bank believes that the stability of industry profits is expected to continue to increase in the future. On the other hand, as the internal capital expenditure of the electrolytic aluminum industry continues to decline, the stable profits of listed companies are expected to bring about continuous improvement in balance sheets, which may eventually be reflected in continued growth in dividend repurchases. The bank estimates the dividend ratio of major listed companies based on current prices of electrolytic aluminum and alumina, which is expected to be close to 6%. The bank believes that under the guarantee of the medium-term supply and demand pattern, the electrolytic aluminum industry is expected to become a real dividend asset with stable dividends, and suggests actively paying attention to investment opportunities in Hongqiao (01378) in China.