Industrial Securities Co.,Ltd. issued a research report maintaining a "Buy" rating on CHINAHONGQIAO (01378). Since the start of the year, aluminum prices have accelerated their upward trend, surpassing the high level of 24,000 yuan per ton. This is primarily driven by expectations of supply-side disruptions following the shutdown of a Mozal aluminum smelter in Mozambique, coupled with the narrative foundation provided by the substitution of aluminum for copper, collectively fueling a catch-up rally in aluminum prices. The company's estimated net profit attributable to shareholders for 2025/2026/2027 is forecasted at RMB 23.981 billion, RMB 36.184 billion, and RMB 39.413 billion, representing year-on-year increases of +7.2%, +50.9%, and +8.9%, respectively. Based on the closing price on January 15, the PE ratio relative to the forecasted 2026 EPS is 8.8x. The main viewpoints of Industrial Securities are as follows:
Overseas supply-side disruptions are intensifying. The Mozal aluminum smelter in Mozambique, the second-largest electrolytic aluminum plant in Africa, has decided to formally shut down in March 2026 due to rising electricity costs. Many overseas electrolytic aluminum plants suffer from aging equipment and thin profit margins, while the globe faces increasing pressure on power consumption and energy usage. Overseas electrolytic aluminum capacity will face long-term challenges from rising electricity costs, geopolitical risks, and equipment failure risks. Since the end of 2025, incidents disrupting overseas electrolytic aluminum capacity have been increasing frequently.
Copper prices continue to break historical highs, with the copper-to-aluminum ratio exceeding 4, accelerating the industrial trend of aluminum substituting for copper. In December 2025, the air conditioning industry introduced an industry standard for aluminum replacing copper and established self-regulatory conventions. Since the beginning of the year, expectations of tariffs driving hoarding demand for copper, coupled with strikes at copper mines owned by Capstone Copper, have jointly driven copper prices to repeatedly hit new historical highs, further pulling aluminum prices upward under the narrative of substitution for copper.
Driven by both supply and demand dynamics, aluminum is entering a cycle of tight supply, which, combined with low inventory levels, supports a rise in the price center for aluminum. On the supply side: Domestic capacity is approaching its ceiling limit; 2026 is expected to be the final year of significant electrolytic aluminum capacity growth in China, with nearly 600,000 tonnes of new capacity planned. Restarting idled capacity in Europe and the US is challenging. Indonesia is the primary contributor to global capacity increments, expected to add 700,000 to 900,000 tonnes of new production in 2026, and over one million tonnes in 2027, with longer-term plans for ten million tonnes of capacity, though these face significant challenges related to power supply for implementation. On the demand side: The average annual global demand growth for electrolytic aluminum from 2023 to 2025 was approximately 1.8 million tonnes, with a two-year CAGR of 2.5%. Demand growth for 2026E is estimated at 1.5 to 2.0 million tonnes, a year-on-year increase of 2.0% to 2.7%. Structural demand growth exists in sectors such as transportation, power grids, energy storage, and aluminum substitution for copper.
Chinese electrolytic aluminum companies possess global competitiveness and are translating industry benefits into shareholder returns. With an optimistic view on the rising price center for aluminum, every 10% increase in aluminum prices is estimated to contribute approximately 30% EPS accretion. The convergence of quality and cycle dynamics supports a positive outlook for the revaluation of the electrolytic aluminum sector. As an integrated leader in electrolytic aluminum, CHINAHONGQIAO demonstrates strong earnings stability and places high importance on shareholder returns, leading the industry in its shareholder return ratio. A significant decline in capital expenditure is anticipated starting in 2026, indicating further potential for growth in shareholder returns.
CHINAHONGQIAO's integrated advantages ensure high and stable profitability. The company plans to continue transferring capacity to Yunnan through 2027, recaptured some minority interests in 2025, and the commencement of operations at the Simandou iron ore mine will further strengthen the company's resource attributes. The company emphasizes protecting shareholder rights; its dividend payout ratio has increased from nearly 45% in 2019 to 63% in 2024, and the company has committed to maintaining a stable dividend level in 2025. In 2025, the company repurchased 310 million shares, utilizing HKD 5.6 billion, and total shareholder returns for 2025 are expected to exceed RMB 20 billion.
2024 and 2025 represent peak years for the company's capital expenditure, primarily due to significant investments in constructing supporting photovoltaic facilities in Yunnan and relocating capacity. Capital expenditure is projected to decrease significantly starting in 2026, leading to a substantial improvement in free cash flow and creating further potential for dividend growth.
Risk warnings include: rectification of self-owned power plants, political instability in Guinea, and demand falling short of expectations.