CMB International: Steady profit growth, undervaluation provides margin of safety to maintain China's Hongqiao (01378) “buy” rating

The Zhitong Finance App learned that CMB International released a report stating that China's Hongqiao (01378) announced its 2026 interim results. Thanks to the sharp rise in the volume and price of aluminum alloy products and effective cost control, the company's core net profit achieved steady growth. Although market concerns about the increase in aluminum supply in the industry in 2027 have heated up, the bank emphasized that the current 2026/2027 projected price-earnings ratio of 5.8 times/6.4 times that of Hongqiao in China has provided a sufficient margin of safety for a potential decline in aluminum prices. As a result, the bank maintained China Hongqiao's “buy” rating and set a target price of HK$39. There is room for an increase of about 70% compared to the current stock price.

CMB International pointed out that although the alumina sector's performance was somewhat dragged down by falling prices during the reporting period, China's Hongqiao's overall profit performance was still strong. Financial reports show that in the first half of 2026, the company achieved net profit (reported caliber) of RMB 17.2 billion, an increase of 39% over the previous year; after excluding the impact of changes in the fair value of convertible bonds, core net profit reached RMB 16.3 billion, an increase of 10% over the previous year.

The aluminum alloy product segment, which is the company's core revenue source, performed well. In the first half of the year, the sector's revenue increased 15% year over year to RMB 59.6 billion. Although sales volume fell slightly by 3%, the average sales price rose 19% year over year to RMB 21,200 per ton. Thanks to a 2.4% year-on-year decrease in costs, the sector's gross profit per unit increased sharply by 81% to RMB 8,200 per ton, and gross margin increased 13.3 percentage points to 38.5% year over year.

In addition, revenue from the aluminum processing products sector surged 41% year on year to 16.7 billion yuan (including sales of deep-processed products of 10.4 billion yuan), and gross margin also increased 8.9 percentage points to 32.2%.

Based on careful consideration of alumina's profit margin and cost side, CMB International slightly lowered China's Hongqiao's net profit forecast for 2026 to 2028 by 6%-7%, while also adjusting the target price from HK$45 to HK$39, corresponding to 10 times the price-earnings ratio in 2026.