CHINA HONGQIAO(1378.HK)：LACK OF INTERIM DIVIDENDS BUT NEW BUYBACK SCHEME TO BOOST CONFIDENCE

Core Insights - Hongqiao's net profit for 1H25 reached RMB12.3 billion, reflecting a 35% year-on-year increase, aligning with previously announced profit figures [1] - Core net profit, excluding fair value losses from convertible bonds, is estimated at RMB14.9 billion, marking a 42% year-on-year growth [1] - The company did not propose interim dividends, a departure from its historical practice, but initiated a new share buyback scheme with a minimum expenditure of HK$3 billion, indicating management's confidence [1] - Earnings forecasts for 2025E-27E have been revised upward by 12-14% due to higher aluminum prices and lower coal price assumptions [1] - Target price has been adjusted to HK$27 from HK$20.6, based on an 8.6x P/E ratio, which is 1 standard deviation above the historical average [1] Revenue Breakdown - Aluminum alloy products, which account for 64% of revenue, saw a revenue increase of approximately 5% year-on-year to RMB51.9 billion, with sales volume up 2.4% to 2.91 million tonnes and average selling price (ASP) rising 2.7% to RMB17,853 per tonne [2] - The alumina segment, contributing 26% of revenue, experienced a significant revenue surge of around 28% year-on-year to RMB20.7 billion, with sales volume increasing by 10% to 6.37 million tonnes and ASP up 5% to RMB3,243 per tonne [2] - The aluminum fabrication products segment, making up 10% of revenue, reported a 6.5% year-on-year revenue increase to RMB8 billion, with sales volume rising 3.4% to 392 million tonnes and ASP increasing by 2.9% to RMB20,615 per tonne [3] Share Buyback and Earnings Sensitivity - Hongqiao has been actively engaged in share buybacks, completing approximately 62.3 million shares (0.67% of total outstanding shares) in 1Q25, followed by a new buyback plan of RMB2 billion announced in April and an additional plan for at least RMB3 billion [4] - The buyback represents 1.4% of total shares and 4.5% of free float shares, with execution allowed until May 2026 [4] - Earnings sensitivity analysis indicates that a 1% increase in aluminum prices could boost earnings by 3%, while a 1% decrease in coal prices could increase earnings by 0.5% [4]