A research report maintains a "buy" rating for China Hongqiao (01378), highlighting the company's stable profitability and prominent dividend attributes.
The analysis points out that domestic electrolytic aluminum supply has approached capacity limits, while downstream demand continues to look favorable, particularly with strong aluminum demand from new energy and ultra-high voltage sectors. Despite falling alumina prices, profitability in the electrolytic aluminum smelting segment has increased. As an integrated leader spanning bauxite-alumina-electrolytic aluminum-power plant operations, China Hongqiao demonstrates stable profitability with prominent dividend characteristics.
Additionally, the Simandou iron ore project is planned to commence production by the end of 2025, with production expected to double in 2026, which will further highlight the company's resource attributes.
With aluminum prices maintaining high levels and stable production, the profitability center of electrolytic aluminum has shifted upward. Although alumina prices declined slightly quarter-over-quarter, profitability improved compared to 24H1. China Hongqiao's net profit attributable to shareholders reached 12.4 billion yuan in 25H1, up 3.2 billion yuan year-over-year and down 0.9 billion yuan quarter-over-quarter.
**Electrolytic Aluminum Segment Shows Strong Supply-Demand Dynamics**
The supply-demand pattern remains favorable. In the first half, photovoltaic rush installations and aluminum material export rushes supported electrolytic aluminum demand resilience beyond expectations, maintaining high aluminum prices. The average selling price per ton of electrolytic aluminum in 25H1 was 17,853 yuan, up 146 yuan quarter-over-quarter and 474 yuan year-over-year.
Production remained stable during the period, with electrolytic aluminum sales volume increasing 2.4% year-over-year (up 70,000 tons) to 2.91 million tons. Sales of aluminum products and aluminum alloy processed products increased 2.5% year-over-year (up 80,000 tons) to 3.30 million tons.
**Alumina Prices Decline but Profitability Improves**
Domestic and international alumina capacity additions have gradually come online, causing alumina prices to gradually decline from 24H2 high levels. The selling price per ton of external alumina sales in 25H1 decreased 664 yuan quarter-over-quarter to 3,243 yuan, while increasing 301 yuan year-over-year.
External alumina sales volume increased 860,000 tons year-over-year to 6.37 million tons during the period, with gross profit per ton increasing 185 yuan year-over-year to 933 yuan.
**Financial Management and Capital Allocation**
China Hongqiao continues to strictly control expenses while maintaining high capital expenditure, with interest-bearing debt increasing. Total three expenses in 25H1 amounted to 3.96 billion yuan, decreasing 420 million yuan year-over-year. Selling expenses, administrative expenses, and financial expenses per ton decreased 5/59/96 yuan year-over-year to 37/704/389 yuan respectively. Interest-bearing debt increased 4.7 billion yuan quarter-over-quarter to 75.5 billion yuan in 25H1, but financing costs declined.
The company maintained high capital expenditure levels at 9.89 billion yuan in 25H1, directed toward Yunnan capacity relocation, Yunnan photovoltaic projects, and Shandong lightweight projects.
**Shareholder Returns and Buyback Program**
China Hongqiao canceled its interim dividend, but the full-year dividend payout ratio for 2025 is expected to remain at the same level as 2024 (payout ratio: 63%). The company emphasizes shareholder returns and announced a share buyback plan of no less than HK$3 billion.
Since the beginning of the year, the company has continuously repurchased shares, spending approximately HK$2.6 billion to buy back 187 million shares, representing 2% of outstanding shares at the end of 2024.