CICC has released a research report indicating that, in light of declining alumina prices, it has cut its net profit forecasts for Nanshan Aluminium International (02610) for 2026 and 2027 by 50% and 32%, respectively, to US$203 million and US$309 million. At the current share price, this corresponds to 11x and 7x price-to-earnings ratios for 2026 and 2027. The firm has maintained its Outperform rating on the stock. Factoring in the lower earnings expectations, CICC has reduced its target price by 47% to HK$34.81, which translates to 14x and 9x P/E ratios for 2026 and 2027, implying a 25% upside from the current share price.

Where the shortfall lies

The company's first-half 2026 results fell short of the brokerage's projections. Nanshan Aluminium International reported revenue of US$415 million for the period, down 30.5% year-on-year, while net profit attributable to shareholders reached US$63 million, a decline of 74.8% compared to the same period last year. The weaker-than-expected performance was primarily attributed to the drop in alumina prices.

Volume growth offset by price declines in 1H26

On the pricing front, the average alumina price in the first half of 2026 fell to US$320 per tonne from US$529 per tonne a year earlier, representing a year-on-year decrease of 39.5%. However, alumina sales volume rose by 15.0% year-on-year to 1.296 million tonnes, up from 1.127 million tonnes. On the cost side, the average production cost per tonne of alumina reached US$270 in 1H26, an increase of approximately US$9 compared to 2025, primarily due to underutilized production capacity and higher bauxite prices. Reflecting the combined impact of lower prices and rising costs, gross profit in 1H26 contracted by 79% year-on-year, with the gross margin narrowing to 16%, down 35 percentage points from the prior-year period.

Interim dividend maintains 20% payout ratio

The company declared an interim dividend of HK$0.16 per share, amounting to a total dividend of US$12.661 million. This corresponds to a payout ratio of approximately 20%, consistent with the dividend policy adopted in 2025.

Venturing into aluminium smelting as a second growth engine

Building on its established 4 million-tonne annual alumina production capacity at its Indonesian base, the company plans to extend its reach further down the value chain, with intentions to develop aluminium smelting operations along with related raw materials and supporting businesses. In the first half of 2026, the company announced the launch of the first phase of an aluminium smelting project with an annual capacity of 250,000 tonnes, involving an investment of approximately US$440 million and a construction period of about two years. Additionally, it has outlined plans to add a new 500,000-tonne-per-year aluminium smelting project over the medium to long term, marking the official commencement of its transformation into an integrated alumina-to-aluminium producer.

Pursuing full value-chain opportunities for an integrated aluminium footprint

According to company announcements, Nanshan Aluminium International intends to further extend both upstream and downstream at the appropriate time, aiming to establish a complete, short-distance aluminium industry chain at its Indonesian park—spanning upstream resources, midstream smelting, and downstream processing. This strategy mirrors the model of its Shandong Longkou park, with the goal of maximizing internal synergies, enhancing operational efficiency, and strengthening resilience against risks.