CMB International has maintained its "Buy" rating on CHINAHONGQIAO (01378) and significantly raised its target price from HK$27 to HK$39. The report highlights that the company is poised for further market revaluation, benefiting from improved supply-demand dynamics, resilient end-user demand, and stable costs.

China, accounting for approximately 60% of global aluminum supply, has capped its production capacity at around 45 million tons since the 2017 supply-side reforms. In September 2025, the industry's capacity utilization rate reached a decade-high of 99%, remaining elevated at 98.6% in October. Meanwhile, overseas capacity expansions (e.g., in Indonesia) have progressed slowly, with global supply growth expected to remain constrained over the next 3-6 months.

On the demand side, sectors such as electric vehicles, power equipment, and electronics continue to show resilience, supporting aluminum price increases. CMB forecasts global aluminum demand growth of 2.1%/1.7% for FY2025/26, while supply growth is projected at just 1.7%/1.3%, shifting the market from a surplus in FY2025 to a deficit in FY2026.

Given a more optimistic aluminum price outlook, CMB has raised CHINAHONGQIAO's FY2025-27 earnings estimates by 4-5%. The bank estimates that every 1% rise in aluminum prices could boost the company's earnings by 3%, while a 1% decline in coal prices would lift earnings by 0.4%.

The report underscores CHINAHONGQIAO's robust free cash flow, which is expected to support a 60% dividend payout ratio, with its balance sheet likely to approach net cash status by end-2026. The current dividend yield stands at an attractive ~6%.

Valuation-wise, CHINAHONGQIAO's forward P/E has historically peaked around 10x over the past decade. While its FY2026 P/E has already reached ~10x, CMB sees further upside potential, citing near-term favorable supply-demand conditions and a significantly improved balance sheet (net debt ratio projected to drop from 24% at end-2024 to near net cash by end-2026) as key catalysts for reduced valuation risks.