Jefferies maintains China's Hongqiao (01378) “buy” rating: steady performance in the first half of 2026, debt optimization, management is bullish on aluminum prices in the second half of the year to 23,600-24,300 yuan/ton

The Zhitong Finance App learned that Jefferies recently released a research report on China's Hongqiao (01378) financial report, saying that the company's performance in the first half of 2026 was solid, costs remained stable, and the size of debt declined. The management is still full of confidence in the aluminum market. It is estimated that the aluminum price range for the second half of 2026 will be 23,600-24,300 yuan/ton. The bank believes that the company's valuation is attractive and maintains the buying rating.

The profit performance in the first half of the year was impressive, and one-time profit and loss largely offset each other

China Hongqiao predicts net profit of 17.2 billion yuan after tax for the first half of 2026, an increase of 39% over the previous year. Benefiting from the vertical integration layout, the unit costs of electrolytic aluminum and alumina remained stable in the first half of the year, with a slight year-on-year decline of 2.4% and 1.9%, respectively. The corresponding costs were 13,000 yuan/ton and 2,200 yuan/ton.

Hongqiao achieved fair value revenue of 862 million yuan, which is related to the US$300 million convertible bonds issued in 2025; the 102 billion yuan bonds issued by the company in 2026 will not generate fair value holding gains or losses due to the special design of the term structure.

At the same time, the company suffered impairment losses of approximately RMB 1.1 billion, including:

1) Alumina inventory depreciation of 527 million yuan was caused by a drop in alumina prices in the first half of the year; if the price of alumina remains at about 2,700 yuan/ton, this type of impairment is not expected to occur again;

2) Fixed asset depreciation of 583 million yuan, mainly from Shandong's own power plant, due to relocation of production capacity. Whether the value will be impaired in the second half of the year will depend on the year-end impairment test, and the scale of the impairment is not expected to be significant.

Various one-time gains and losses in the first half of the year largely offset each other. Performance results reflect the strong operating performance of the company's main business against the backdrop of improving aluminum prices.

Management is optimistic about the prospects of the aluminum market

Management believes that the domestic electrolytic aluminum production limit policy has not been relaxed; the supply gap brought about by the reduction in production capacity of Middle Eastern smelters will continue to have an impact on the market in the second half of 2026; according to their observations, the progress of production capacity expansion outside of China falls short of expectations.

Although demand in the construction, automotive, and photovoltaic sectors has slowed down as of this year's reporting period, aluminum exports showed strong performance, with a year-on-year growth rate of over 16%. Management expects aluminum prices to range from 23600 to 24,300 yuan/ton in the second half of 2026, with an average price of about 23,800 yuan/ton.

Supply in the alumina market still exceeds demand. Management expects the price of alumina to be about 2,700 yuan/ton in the second half of 2026. Even at this price, the company can still achieve meager profits.

The company's capital expenditure for the first half of 2026 was 3.7 billion yuan. The low figure was mainly due to the difference in payment times, and management maintained a capital expenditure guideline of $15-16 billion for the whole year.

Main capital investment: 5 to 6 billion yuan for renewable energy investment (such as Yunnan photovoltaic power generation project); 2 billion yuan for capacity relocation; 2 billion yuan for aluminum processing business; the rest for maintenance capital expenses.

The core purpose of the company's self-built photovoltaic project is to ensure stable power supply in Yunnan — Yunnan is highly dependent on hydropower, and the power supply is unstable during the dry water period; at the same time, it meets the relevant requirements for the share of green electricity supply for electrolytic aluminum companies in advance.

In terms of capacity relocation, the company's schedule remains flexible, which mainly depends on the availability and stability of Yunnan's electricity supply, as well as the construction progress of its own photovoltaic project. As of the first half of 2026, Hongqiao has achieved 2.28 million tons of production capacity in Yunnan, with a medium-term target of 3 million tons.

Furthermore, the company continues to push for leverage reduction. By the end of June 2026, the company's total debt had dropped to 67 billion yuan, and the total debt at the end of 2025 was 74 billion yuan. The management did not give a clear goal of reducing debt pressure, but the core idea was:

1) Reduce the share of short-term debt and ensure that at least 60% of debt is long-term debt (62% of long-term debt in the first half of 2026);

2) Reduce high-interest debt. The company aims to keep the balance ratio within 40%, and the balance ratio for the first half of 2026 is slightly higher than 40%.

Hongqiao currently corresponds to the expected price-earnings ratio of 6 times in 2026; assuming a dividend rate of 65% and a dividend rate of 11%. Coupled with the six-month share repurchase of HK$5.2 billion (the scale is about 15% of the expected net profit in 2026), the actual level of shareholder return is even higher. The valuation is attractive and maintains the buying rating.