CMB International has released a research report highlighting CHINAHONGQIAO's (01378) potential for further revaluation, supported by multiple positive factors including sustained optimization of supply-demand dynamics, resilient end-user demand, and stable cost structures. The firm maintains a "Buy" rating on the stock and significantly raises its target price from HK$27 to HK$39.

**Supply Constraints Tighten, Global Growth Limited** As the world's aluminum production hub, China contributes approximately 60% of global output. Since the 2017 supply-side reforms, domestic aluminum capacity has been capped at around 45 million tons, with tightening regulatory controls. In September 2025, industry capacity utilization hit a decade-high of 99%, remaining elevated at 98.6% in October. Overseas, delayed capacity expansions in regions like Indonesia have led CMB International to project limited global aluminum supply growth over the next 3-6 months.

**Demand Resilience Fuels Shift to Deficit** Robust demand from key sectors—electric vehicles, power equipment, and electronics—continues to underpin aluminum prices. CMB International forecasts global aluminum demand growth of 2.1% and 1.7% for FY2025 and FY2026, respectively, outpacing supply growth of 1.7% and 1.3%. This transition from surplus in FY2025 to deficit in FY2026 is expected to further bolster industry fundamentals.

**Earnings Upgrades, Valuation Upside** CMB International raises CHINAHONGQIAO's FY2025–FY2027 earnings estimates by 4%–5%, citing optimistic aluminum price assumptions. A 1% rise in aluminum prices could lift earnings by 3%, while a 1% drop in coal prices may boost profits by 0.4%. Strong free cash flow supports a 60% dividend payout ratio, with the company poised to achieve a near net-cash balance sheet by end-2026. Current valuations imply an attractive ~6% dividend yield.

Trading at ~10x FY2026 P/E, CMB International sees further upside potential driven by: (1) improving short-term supply-demand sentiment, and (2) a strengthened balance sheet, with net debt ratio projected to decline from 24% at end-2024 to near net-cash by end-2026. These factors are expected to reduce valuation risks and support further re-rating.