Core Viewpoint - Morgan Stanley maintains an "Overweight" rating on China Hongqiao (01378) and significantly raises the target price from HKD 17 to HKD 26.5, indicating substantial upside potential based on record earnings, industry-leading valuation advantages, and long-term value enhancement from strategic transformation [1] Financial Performance - In the first half of the 2025 fiscal year, China Hongqiao achieved revenue of RMB 81.039 billion, a year-on-year increase of 10%; net profit reached RMB 12.361 billion, surging 35% year-on-year, with a gross margin improvement to 25.7% [1] - The growth in profit was primarily driven by a slight increase of 3% in aluminum product sales, a 6% rise in gross profit per ton to RMB 4,540, and a significant 16% increase in alumina sales, with gross profit per ton rising to RMB 934 [1] Price Guidance and Market Outlook - Management provided an optimistic price guidance for the second half, expecting aluminum prices to range between RMB 20,600 and RMB 21,300 per ton, and alumina prices between RMB 3,200 and RMB 3,300 per ton, which aligns closely with current spot prices [1] - The company emphasized that asset impairment pressures have been largely alleviated [1] Future Projections - Despite Morgan Stanley predicting a slowdown in revenue growth to 3.9%, -0.3%, and 1.2% for the fiscal years 2025-2027, net profit is expected to maintain single-digit growth, with EBITDA margins projected to continue rising to 29.7% [2] - The company’s return on equity (ROE) is above peers, and it announced a stock buyback plan of no less than HKD 3 billion, representing 1.36% of market capitalization, providing dual support for valuation enhancement [2] Financial Structure and Cash Flow - China Hongqiao's net debt ratio stands at a low 23.8%, with financing costs down 18% year-on-year; annual capital expenditure is expected to stabilize between RMB 12 billion and RMB 13 billion, with a free cash flow yield of 15%, supporting ongoing shareholder returns [2] - Although the interim dividend for 2025 has been canceled, the annual payout ratio is expected to remain at 63%, alongside the announced buyback plan [2] Competitive Position and Strategic Initiatives - As the world's largest primary aluminum producer with a production volume of 6.3 million tons in 2023, China Hongqiao enjoys significant cost advantages through a vertical integration model, including self-sufficient power plants and a 70%-80% self-sufficiency rate in bauxite [2] - The company is focusing on a green transition strategy, with 24-25% of aluminum production expected to be powered by hydropower by 2024, aiming for 50% green energy consumption in the long term, which highlights its long-term value in the context of ESG investment trends [2] Valuation and Market Comparison - Despite short-term risks from aluminum price fluctuations, rising electricity and coal costs, and exchange rate changes, Morgan Stanley believes the company has mitigated risks through prior asset impairment provisions [3] - Based on a projected P/E ratio of 9 times and a P/B ratio of 1.8 times for 2026, the target price of HKD 26.5 corresponds to a dividend yield of 7.7%-8.2%, with a net debt/EBITDA ratio maintained at a stable level of 0.1-0.3 [3] - The current dynamic P/E ratio of 8 times for China Hongqiao remains below the global industry average of 11 times, indicating ample room for valuation recovery [3]
小摩上调中国宏桥(01378)目标价至26.5港元 绿色转型+回购计划支撑估值修复