Core Viewpoint - 招银国际 maintains a "Buy" rating for China Hongqiao (01378) and significantly raises its target price from HKD 27 to HKD 39, citing improved supply-demand dynamics, robust end-user demand, and stable costs as key factors for market re-evaluation [1][2] Industry Summary - China accounts for approximately 60% of global aluminum supply, with production capacity capped at around 45 million tons since the supply-side reform in 2017. As of September 2025, industry capacity utilization reached a ten-year high of 99%, remaining at 98.6% in October. Additionally, new overseas capacity, such as in Indonesia, is progressing slowly, leading to limited global supply growth in the next 3-6 months [1] - End-user demand in sectors like electric vehicles, power equipment, and electronics remains resilient, supporting an increase in aluminum prices. Global aluminum demand is projected to grow by 2.1% and 1.7% in the fiscal years 2025 and 2026, respectively, while supply is expected to grow only by 1.7% and 1.3%, shifting the market from a supply surplus in FY 2025 to a supply shortage in FY 2026 [1] Company Summary - Based on a more optimistic outlook for aluminum prices, 招银 has raised its profit forecasts for China Hongqiao for 2025-2027 by 4-5%. The company is estimated to see a 3% profit increase for every 1% rise in aluminum prices, while a 1% decrease in coal prices could boost profits by 0.4%. The report highlights the company's strong free cash flow, which is expected to support a 60% dividend payout ratio, with a near net cash balance sheet structure anticipated by the end of 2026. The current stock price corresponds to an attractive dividend yield of approximately 6% [2] - Over the past decade, China Hongqiao's forward P/E ratio has frequently peaked at 10 times. Although the expected P/E ratio for 2026 is around 10 times, 招银 believes there is still upside potential for the stock price due to favorable short-term industry supply-demand dynamics and significant improvements in the balance sheet, with net debt ratio projected to decrease from 24% at the end of 2024 to a near net cash position by the end of 2026 [2]
招银国际：供需格局优化推动重估 上调中国宏桥目标价至39港元