Investment Rating - The report maintains a "BUY" rating for China Hongqiao with a target price of HK$19.60, up from the previous target of HK$17.90, indicating a potential upside of 52.9% from the current price of HK$12.82 [5][34]. Core Views - The aluminum sector is expected to benefit from China's pro-market policies, which are anticipated to increase aluminum prices in the near term. The report revises earnings forecasts for 2024E-2026E upward by 9-12% due to higher price assumptions for aluminum and alumina [3][34]. - The report highlights that a 1% increase in aluminum prices could boost Hongqiao's earnings by 4% [3]. - The company is currently trading at a mid-cycle valuation of 7x 2024E P/E, with an attractive yield of 7% [3]. Revenue and Profit Forecasts - Revenue is projected to grow from RMB 133,624 million in 2022 to RMB 151,734 million in 2026, reflecting a compound annual growth rate (CAGR) of approximately 4% [4][36]. - Adjusted net profit is expected to increase from RMB 11,461 million in 2023 to RMB 19,160 million in 2026, indicating a strong growth trajectory [4][36]. Price Trends and Market Dynamics - The Shanghai aluminum price has rebounded to RMB 20,395 per ton, a 3% increase since early September, with an average price of RMB 19,600 per ton in Q3 2024, up 4% year-on-year [3][34]. - The report notes that alumina prices have seen a significant increase of 35% year-on-year, with forecasts indicating a 34% increase in Hongqiao's alumina ASP in 2H24 [3][34]. Supply and Demand Factors - China's aluminum production growth slowed to 1.3% year-on-year in August, with a capacity utilization rate of approximately 96.7%. Limited new supply is expected due to government-imposed capacity limits [3][34]. - The report estimates that construction and automobile sectors in China account for 16% and 14% of global aluminum demand, respectively, with government policies expected to stabilize demand expectations [3][34]. Valuation Insights - The report indicates that Hongqiao has historically traded at an average forward P/E of 6x, with peaks at 10x and troughs around 3x. The new target price reflects a valuation of 9.8x 2024E P/E, which is 1.5 standard deviations above the historical average, suggesting a potential industry upcycle [3][34].
中国宏桥：Expect higher ASP following China’s stimulus