CHINAHONGQIAO (01378) announced its 2025 interim results last week. Morgan Stanley released a research report stating that the company's net profit for the first half of 2025 was in line with previous guidance. Although the company did not declare an interim dividend, the bank believes that the assurance of full-year dividend distribution, combined with a HK$3 billion share buyback plan, will continue to enhance shareholder returns. Morgan Stanley maintains its "Overweight" rating on CHINAHONGQIAO, listing the stock as a "top pick" with a target price of HK$24.80.

Morgan Stanley noted that CHINAHONGQIAO's net profit for the first half of 2025 increased 35% year-over-year to approximately RMB 12.4 billion, meeting guidance. The bank attributed the strong earnings performance to: 1) increased profit contribution from the aluminum business, particularly in Q2 2025, as aluminum production costs decreased due to lower self-supply electricity prices in Shandong (affected by declining thermal coal prices) and reduced hydroelectric power prices in Yunnan; 2) increased sales of aluminum and alumina, rising 2.4% and 15.6% year-over-year respectively; 3) resilient profit contribution from the alumina business, with gross profit increasing 44% year-over-year in the first half of 2025 and gross margin improving 1.5 percentage points year-over-year to 25.7%.

Morgan Stanley highlighted that CHINAHONGQIAO's balance sheet continues to improve. With debt reduction, the net debt ratio further decreased to 23% in the first half of 2025, down from 26% in the first half of 2024. Due to optimized debt structure and lower interest rates, total financing costs decreased 18% year-over-year to RMB 1.3 billion.

Morgan Stanley added that the assured full-year dividend and new share buyback plan will enhance CHINAHONGQIAO's shareholder returns. The bank noted that although company management did not distribute an interim dividend for the first half of 2025, it guaranteed that the full-year payout ratio for 2025 would be no less than 2024 levels (approximately 63%). Meanwhile, the company's board announced a new share repurchase plan to buy back company shares from the market from time to time, with total repurchase amount of no less than HK$3 billion, and all repurchased shares will be cancelled.

Morgan Stanley concluded that despite the slowdown in consumption seasonality, aluminum prices are fluctuating at high levels, supported by low social inventory levels. Higher aluminum prices, combined with declining bauxite and electricity costs helping to further reduce production costs, are expected to sustain the company's earnings resilience into the second half of 2025.