JPMorgan has published a research report maintaining its "Overweight" rating on CHINAHONGQIAO (01378) while significantly raising the target price from HK$17 to HK$26.5, representing substantial upside potential from current share price levels. This adjustment is based on the company's record-breaking profit performance in the first half of the year, industry-leading valuation advantages, and long-term value enhancement from strategic transformation.
Financial data shows that CHINAHONGQIAO achieved revenue of RMB 81.039 billion in the first half of fiscal 2025, up 10% year-on-year, with net profit reaching RMB 12.361 billion, surging 35% year-on-year, while gross margin improved to 25.7%. The profit growth was primarily driven by a modest 3% increase in aluminum product sales volume, a 6% improvement in gross profit per ton to RMB 4,540, as well as a significant 16% surge in alumina sales volume with gross profit per ton rising to RMB 934.
Additionally, management provided relatively optimistic guidance for the second half regarding aluminum and alumina prices, expecting aluminum prices to operate within RMB 20,600-21,300 per ton and alumina prices at RMB 3,200-3,300 per ton, essentially in line with current spot prices, while emphasizing that asset impairment pressures have largely been cleared.
Although JPMorgan forecasts that revenue growth will moderate to 3.9%, -0.3%, and 1.2% for fiscal years 2025-2027 respectively, net profit is still expected to maintain single-digit growth, with EBITDA margin projected to continue climbing to 29.7%. The analysts particularly highlighted that the company's above-peer ROE (return on equity) and the announced share buyback program of no less than HK$3 billion (representing 1.36% of market capitalization) provide dual support for valuation enhancement.
In terms of financial structure, CHINAHONGQIAO's net debt ratio stands at only 23.8%, with financing costs declining 18% year-on-year. Full-year capital expenditure is expected to remain stable at RMB 12-13 billion, with free cash flow yield reaching 15%, providing confidence for continued shareholder returns. While the company canceled its 2025 interim dividend, the full-year dividend payout ratio is expected to maintain last year's level of 63%, complemented by the share buyback plan of at least HK$3 billion, representing approximately 1.36% of market value.
As the world's largest primary aluminum producer (with 2023 production of 6.3 million tons), CHINAHONGQIAO enjoys significant cost advantages. Through its vertically integrated model (captive power plants + 70%-80% bauxite self-sufficiency rate), the company effectively hedges against energy price volatility. More noteworthy is its green transformation strategy: 24-25% of aluminum production in 2024 will be powered by hydroelectricity, with a long-term goal of achieving 50% green energy consumption, a positioning that highlights long-term value under ESG investment trends.
Despite short-term risks from aluminum price volatility, rising electricity and coal costs, and exchange rate fluctuations, JPMorgan believes the company has mitigated risks through previous asset impairment provisions (power and alumina assets). Based on a valuation model using 9x projected 2026 P/E ratio and 1.8x P/B ratio, the HK$26.5 target price corresponds to a dividend yield of 7.7%-8.2%, with net debt/EBITDA ratio maintaining a healthy level of 0.1-0.3.
The JPMorgan analyst team emphasized that CHINAHONGQIAO's current 8x forward P/E ratio remains below the global peer average of 11x, indicating ample room for valuation recovery.