Jefferies has maintained its "Buy" rating on CHINAHONGQIAO (01378) and raised its target price from HK$26.90 to HK$34.1, citing the company's better-than-expected Q3 2025 performance driven by its core subsidiaries. The firm highlighted CHINAHONGQIAO's long-term growth potential amid favorable supply-demand dynamics in the aluminum industry.

According to the report, Shandong Hongqiao—CHINAHONGQIAO's core subsidiary, which includes all its domestic assets with 6.46 million tons/year of aluminum capacity and 17.5 million tons/year of alumina capacity—posted a net profit of RMB19.4 billion in the first three quarters of 2025, up 23% YoY. Q3 net profit alone reached RMB6.9 billion, rising 14.4% QoQ and 17.6% YoY, aligning with Jefferies' estimates.

Jefferies noted that higher aluminum and alumina prices contributed RMB5-6 billion in QoQ profit growth, while lower electricity costs in Yunnan during the rainy season saved about RMB300 million (partially offset by rising coal prices in Shandong). Including contributions from its Indonesian alumina project and Guinea bauxite operations, CHINAHONGQIAO's Q3 net profit (excluding convertible bond fair value adjustments) likely approached RMB8 billion, with cumulative nine-month profits exceeding RMB20 billion—already surpassing 80% of full-year market expectations.

Aluminum prices have outperformed expectations since Q3 2025 due to improving macro conditions and industry supply-demand trends. Jefferies pointed out that spot aluminum prices have exceeded RMB21,000/ton, supported by U.S. rate cuts, positive sentiment, and potential supply disruptions. Even with alumina price corrections and higher coal costs, CHINAHONGQIAO's Q4 operating profit could match Q3 levels if aluminum prices hold steady.

Management disclosed that convertible bonds issued in 2021 have largely been converted, significantly reducing non-cash impacts on 2025H2 earnings. Meanwhile, 2025-issued convertible bonds (conversion price: HK$19.36) pose limited risk as shares now trade around HK$30.

Jefferies raised its 2025/2026 net profit forecasts by 4% and 8% to RMB25.9 billion and RMB26.7 billion, respectively, assuming aluminum prices of RMB20,600/ton and RMB20,800/ton. The new HK$34.1 target price reflects an 11x 2026 P/E and implies a ~6% dividend yield based on a 63% payout ratio. The firm emphasized CHINAHONGQIAO's strong cash flow generation, consistent dividends (>60% payout), and share buybacks as key reasons for maintaining its "Buy" call.