DBS Bank has upgraded its target price for CHINAHONGQIAO (01378) from HKD 22 to HKD 29 over a 12-month period, maintaining its "Buy" rating on the aluminum giant. The bank cited the company's better-than-expected first-half performance and strengthening profitability, coupled with an optimistic outlook for aluminum prices.

CHINAHONGQIAO delivered impressive performance in the first half of 2025. Revenue increased to RMB 81 billion, up 10.1% year-on-year, primarily driven by higher average selling prices (ASP) for alumina and aluminum products, as well as increased sales volume. The company's gross margin improved by 1.5 percentage points year-on-year to 25.7%, while net attributable profit surged 35% to RMB 12.36 billion, pushing the net profit margin up by 3 percentage points to 17%.

Regarding financial health, CHINAHONGQIAO's financial position is trending toward improvement. Benefits from optimized debt structure and improved interest rates have significantly enhanced the company's interest coverage ratio to 17.6 times, with management planning to continue reducing debt levels over the long term. Although no interim dividend was paid in the first half of 2025, management expects the full-year dividend payout ratio to remain stable at 63%, consistent with fiscal 2024 levels.

Based on expected earnings per share of HKD 2.60 for fiscal 2025 and a potential dividend payout ratio of 63%, DBS forecasts CHINAHONGQIAO's implied dividend yield at 7%, which presents an attractive proposition for investors. The bank also anticipates that strong aluminum prices may persist through 2026-2027, making the company's high dividend payout ratio sustainable, supported by competitive production costs and continuously improving financial conditions.

Looking ahead, DBS expects aluminum price strength to continue, highlighting CHINAHONGQIAO's competitive advantages. The bank noted that CHINAHONGQIAO's management expects average electrolytic aluminum selling prices of RMB 20,600-21,300 per ton and alumina selling prices of RMB 3,200-3,300 per ton for 2025, indicating continued strong aluminum price prospects.

In the first half of 2025, global aluminum demand is expected to grow 3.1%, outpacing supply growth of 1.8%. DBS believes that under China's "anti-involution" guidelines, supply controls will strengthen, and leading companies are positioned to benefit from rising average selling prices and market consolidation. CHINAHONGQIAO's integrated supply chain and increasing proportion of green electricity may further enhance its production cost advantages.

The company targets completing the relocation of approximately 2.2 million tons of capacity to Yunnan by fiscal 2025, representing 34% of its total capacity.