Huachuang Securities: Maintaining China's Hongqiao (01378) “Recommended” Rating Target Price of HK$34.3 as a high dividend target for high-quality electrolytic aluminum

The Zhitong Finance App learned that Huachuang Securities released a research report saying that China Hongqiao (01378), as the world's leading producer of the entire aluminum industry chain, has the support and scale advantages of the entire industry chain to create a profit moat, and the high self-sufficiency rate of bauxite, electricity, and alumina guarantees the company's cost advantage per ton of aluminum. The bank expects the company to achieve net profit of 24.803 billion yuan, 25.81 billion yuan, and 27.96 billion yuan in 25-27, +10.9%, 4.1%, and 8.3% year-on-year, respectively. The average valuation of comparable companies in the industry in 2026 was 11 times. Considering the company's high dividend attributes, the company was given a price-earnings ratio of 12 times in 2026. The target price was HK$34.3, maintaining the “recommended” rating.

Combining fluctuations in aluminum prices and changes in raw material costs, the bank assumes a 25-27 aluminum price increase of 2.06/2.1/21,300 yuan/ton, and a 25-27 year reduction of alumina of 0.32/0.275/0.2.75 million yuan/ton.

The main views of Huachuang Securities are as follows:

The company completed placement matters, mainly to meet domestic and foreign projects and debt repayment needs. The asset structure and quality are expected to be further optimized in the future

On November 25, the company issued “Complete Placement of Existing Shares and Subscription of New Shares in accordance with General Mandate”, announcing that all conditions set out in the Company's placement and subscription agreement have been fulfilled, and that the placement matters and subscription matters have been completed on November 20 and November 25, 2025, respectively. The company will distribute and issue a total of 400 million subscribed shares to Hongqiao Holdings at a subscription price of HK$29.20 per share. The undertakers are 6 or more persons independent of Hongqiao Holdings or any person acting in concert with it, and also independent of Hongqiao Holdings or those acting in concert with it, and also independent of China Hongqiao and its affiliates. The estimated net subscription amount is approximately HK$11.49 billion.

Among them: 60% of the subscription amount (approximately HK$6.894 billion) was used to develop and enhance domestic and foreign projects. As of June 30, 2025, the company's capital expenditure and capital were about HK$10.8 billion and HK$8.1 billion respectively. It is expected to generate about HK$5 billion in capital expenses within the next three months, mainly for the construction of new energy projects in Yunnan, technological upgrading of existing production capacity, lightweight materials projects and Ximangdu iron ore projects; 30% of the subscription amount (approximately HK$3.447 billion) was used to repay existing debts to optimize the company's capital structure. As of the end of the company The total domestic and overseas debt due before June 30, 2026 is approximately HK$54 billion; 10% of the subscription amount (approximately HK$1,149 million) is used for operating capital and general corporate purposes. It is estimated that approximately HK$700 million will be used to purchase coal, while approximately HK$400 million will be used to procure other raw materials required for production. The estimated funding allocation and expected time may be adjusted appropriately according to factors such as operating requirements, capital requirements and project progress.

The company is optimistic about future development prospects, and the actual controller simultaneously increases its holdings and subscribes

On November 18, 2025, the Hongqiao Holdings Open Market purchased a total share capital of 7.5 million shares at an average price of HK$30.5353 per share, increasing the shares held by Hongqiao Holdings from 63.94% to 64.02% before and after the increase in holdings. Mr. Zhang Bo, Ms. Zhang Hongxia, and Ms. Zhang Yanhong held a total of 64.11% of the shares. The actual controller continues to be optimistic about future development. The company implemented a subscription at the same time. After the placement was completed, Hongqiao Holdings' shares fell to 59.82%, but after the placement and subscription, Hongqiao Holdings' shares rebounded to 61.44%. Mr. Zhang Bo, Ms. Zhang Hongxia, and Ms. Zhang Yanhong held a total of 61.53% of the company's interests. Under laws and regulations, Hongqiao Holdings did not rule out plans to further increase the company's shares in the future, demonstrating the company's confidence in future development.

China Hongqiao's third quarter results may exceed expectations

Shandong Hongqiao, a wholly-owned subsidiary of China Hongqiao, released a three-quarter report. The company's revenue for the first three quarters was 116.93 billion yuan, +6% year over year; net profit was 19.37 billion yuan, +23% year over year, of which Q3 revenue was 38.7 billion yuan, +2% year over month, and net profit of 6.9 billion yuan, +18% year over month, and +14% month on month. The bank believes that the increase in Q3 performance is mainly due to the rapid increase in the profitability of electrolytic aluminum. According to Steel Union, the Q3 electrolytic aluminum industry profit was 4,724 yuan/ton, 25Q2 +14%, and 24Q3 +84%, alumina industry profit 346 yuan/ton, 25Q2 +120% month-on-month, and 24Q 3-68%. If the profit contributions of the alumina project in Indonesia and the bauxite business in Guinea are included, China's Hongqiao Q3 performance clearly exceeded expectations.

Aluminum prices have generally risen since 2025Q4. Optimistic about the elasticity and dividend properties of electrolytic aluminum, the company is expected to benefit

Since 2025Q4, the average domestic aluminum price was 2,1407 yuan/ton, up 3.4% from Q3, driving aluminum prices to 20,646 yuan/ton during the year, up 1.0% from the average price in the first three quarters of 25 years. The bank believes that due to the tightening of global supply and the explosion in energy storage demand since the fourth quarter, the tight balance between global aluminum supply and demand is expected to continue in the next 2 years. Currently, the total LME+ domestic aluminum inventory will remain low, and safety stocks will continue to remain low, forming an upward support for aluminum prices; judging from financial attributes, the historical copper-aluminum ratio is 3.3-3.7 higher, and the current domestic copper-aluminum ratio has risen above 4. Expectations of interest rate cuts have strengthened and the copper-aluminum ratio will increase or drive aluminum prices to make up the increase. Furthermore, considering that the current rise in US aluminum is close to 70%. If the logic of lack of electricity evolves and the US cuts production, aluminum will rise or be more flexible, aluminum costs will fall, and the profit of electrolytic aluminum is expected to remain high, and aluminum dividend+elasticity is expected to remain high. Meanwhile, China's Hongqiao's aluminum production capacity is at the top of the world, and high dividends+repurchases continue to advance, and dividend asset attributes are gradually becoming prominent, which is expected to benefit the core.

The company's Simandou iron ore was officially put into operation, which will enhance the company's performance in the future

On November 11, 2025, the commissioning ceremony of the Simandou iron ore project in Guinea was held, marking the official commissioning of the world's large-scale high-quality iron ore project. The mine includes two blocks in the north and south, each with a production capacity of 60 million tons/year. It is expected to produce 30 million tons of iron ore each in the first year after operation, and reach full production in the second year. On December 3, the first ship of iron ore for the Simandou project was successfully shipped. Considering that China Hongqiao Group holds 21.36% of the shares in northern Simandou, the mine is of excellent quality and is expected to continue to increase the company's performance in the future.