Morgan Stanley has released a research note initiating coverage on CHINAHONGQIAO (01378) with an "Overweight" rating and a target price of HK$28.6. The report highlights that the company's net profit for the first half of 2026 grew 39% year-on-year to RMB 17.2 billion, aligning with market expectations.

The strong first-half earnings were driven by several key factors. Aluminum prices surged 18.7% year-on-year due to global supply disruptions, while sales volume of deep-processed aluminum alloy products climbed 23.2%. The overall gross margin expanded by 5.8 percentage points to 31.5%, compared with 25.7% in the same period last year.

The company's net debt ratio continued to decline, falling from 29% in the first half of 2025 to 21% in the first half of 2026. Financing costs dropped 14% year-on-year to RMB 1.1 billion, reflecting an optimized debt structure and the positive impact of lower interest rates.

Looking ahead to the second half of the year, Morgan Stanley expects the company's earnings to remain stable. Despite some production capacity in the Middle East recovering earlier than anticipated and rising output from Indonesia, the global aluminum market is still expected to face a supply deficit this year. This should keep aluminum prices elevated, providing support for China Hongqiao's profitability in the latter half of 2026.

Morgan Stanley emphasized that at current share price levels, China Hongqiao's valuation is attractive, with a compelling dividend yield for investors.