CHINAHONGQIAO (01378) reported better-than-expected Q3 2025 results, prompting UBS to reiterate its "Buy" rating. The analysis primarily focused on the performance of its core subsidiary, Shandong Hongqiao.

For the first nine months of 2025 (9M25), Shandong Hongqiao posted a net profit of RMB 19.4 billion, up 23% year-on-year (YoY). Based on this, CHINAHONGQIAO’s 9M25 net profit is estimated at RMB 21 billion, achieving 87% of the market consensus (RMB 24.2 billion) and 84% of UBS’s forecast (RMB 25 billion).

In Q3 alone, Shandong Hongqiao’s net profit reached RMB 6.9 billion, a 17% YoY increase, surpassing UBS’s preliminary estimate of RMB 6.5 billion. CHINAHONGQIAO’s Q3 net profit is estimated at RMB 7.4 billion, slightly exceeding market expectations by 5-7%.

Key drivers included an RMB 1.1 billion gross profit boost from favorable aluminum and alumina price spreads. However, this was partially offset by a RMB 300 million sequential decline in joint venture and associate income and a RMB 100 million rise in non-operating costs. Selling, general, and administrative expenses (SG&A) decreased by RMB 100 million quarter-on-quarter.

UBS maintains a positive long-term outlook on the aluminum sector, citing growth potential in demand and stable industry profitability. As a leader with 6.46 million tons of aluminum and 19.5 million tons of alumina capacity, CHINAHONGQIAO’s strong financial position positions it well to capitalize on industry upcycles.

Risks include weaker-than-expected aluminum/alumina supply-demand dynamics pressuring prices and potential electricity cost hikes in China (especially Yunnan), which could raise production costs for energy-intensive aluminum smelting.

UBS forecasts diluted EPS of RMB 2.66, RMB 3.12, and RMB 3.33 for 2025E, 2026E, and 2027E, respectively—all above consensus. Revenue is projected to stabilize around RMB 1.6 trillion from 2025E–2029E, with EBIT margins sustaining at 22%–25%.