Core Viewpoint - The report from CMB International indicates that China Hongqiao (01378) is expected to undergo further value reassessment due to multiple positive factors, including an optimized supply-demand structure, robust terminal demand, and stable cost conditions. The firm maintains a "Buy" rating and significantly raises the target price from HKD 27 to HKD 39 [1]. Supply Side Constraints - China, as a key player in global aluminum supply, contributes approximately 60% of the world's production. Since the implementation of supply-side reforms in 2017, domestic aluminum production capacity has been capped at around 45 million tons, with ongoing tightening of supply-side controls. By September 2025, industry capacity utilization is projected to reach a ten-year peak of 99%, maintaining a high level of 98.6% in October. Additionally, new capacity in overseas markets, such as Indonesia, is progressing slower than expected, leading CMB International to forecast limited global aluminum supply growth in the next 3-6 months [2]. Resilient Terminal Demand - Strong performance in the demand side is noted, particularly in core application areas such as electric vehicles, power equipment, and electronics, which provide solid support for aluminum prices. CMB International predicts that global aluminum demand growth rates for the fiscal years 2025 and 2026 will reach 2.1% and 1.7%, respectively, while supply growth rates will only be 1.7% and 1.3%. This shift indicates a transition from a supply surplus in fiscal year 2025 to a supply shortage in fiscal year 2026, further supporting industry prosperity [3]. Upward Revision of Profit Expectations - Based on an optimistic outlook for aluminum prices, CMB International has raised its profit forecasts for China Hongqiao for the years 2025-2027 by 4%-5%. The analysis shows that a 1% increase in aluminum prices can lead to a 3% growth in company profits, while a 1% decrease in coal prices can enhance profits by 0.4%. The company is also expected to maintain a strong free cash flow, supporting a high dividend payout ratio of 60%, with an anticipated near-net cash balance sheet structure by the end of 2026. The current stock price corresponds to an attractive dividend yield of approximately 6% [4]. Valuation Potential - In terms of valuation, the expected price-to-earnings ratio for the company in 2026 is projected to be around 10 times, with CMB International remaining optimistic about its upward potential. The core logic includes two aspects: the short-term favorable supply-demand dynamics are expected to continue boosting market sentiment, and the significant improvement in the company's 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. This improvement is seen as a key driver for reducing valuation risks and supporting further valuation recovery [4].
目标价上调44%至39港元！招银国际看好中国宏桥供需改善驱动重估