Under a high base, profitability takes another step up. Looking through the mid-term report, we see the solid growth logic of CHINAHONGQIAO (01378).

With the announcement of the industry leader's performance, investor enthusiasm for the electrolytic aluminum sector may soon be reignited. GMTEight noted that on the evening of August 21, CHINAHONGQIAO (01378) disclosed its interim results for the 2026 fiscal year. The financial report showed that in the first half of the year, CHINAHONGQIAO achieved revenue of 87.506 billion yuan, a continued increase of 8% despite a high base; the net profit attributable to shareholders reached 17.21 billion yuan, with a year-on-year growth of 39.2%. CHINAHONGQIAO's impressive mid-year performance is set to inject new upward momentum into the aluminum sector, which is currently in a phase of consolidation and accumulation. Looking back at the first half of the year, the performance of the aluminum sector was not entirely smooth sailing. Since March, concerns over stagflation caused by geopolitical conflicts in the Middle East have continued to escalate, compounded by the Federal Reserve's hawkish statements that delayed interest rate cuts, resulting in a strong U.S. dollar that consistently suppressed commodity pricing. At the same time, capital globally has been flowing into technology sectors represented by AI, leading to a significant pullback in the aluminum sector under the influence of multiple factors. However, in the secondary market, the performance of leading companies in the industry is often viewed as the most valuable benchmark. CHINAHONGQIAO's mid-year report clearly shows that, against a backdrop of high industry prosperity, this global aluminum leader has consistently realized strong performance growth. Maintaining High Profit Growth Elasticity In the first half of this year, despite the global economy struggling amid low growth and high uncertainty, and geopolitical conflicts significantly amplifying disturbances in financial and commodity markets, the global electrolytic aluminum price center has substantially increased year-on-year, driven by a supply shortage in the aluminum market and sustained demand growth. Data shows that the average price of aluminum for three-month contracts on the London Metal Exchange was approximately USD 3,357 per ton (excluding tax), representing an increase of about 31.9% year-on-year. In the domestic market, buoyed by demand for energy storage, power investments, and increased downstream aluminum exports, China's aluminum consumption market also demonstrated resilience. According to data provided by Antaike, in the first half of the year, Chinas primary aluminum production reached 22.34 million tons, a year-on-year increase of 2.2%; primary aluminum consumption was 23.08 million tons, a year-on-year growth of 0.4%. During the same period, the average price of three-month futures contracts on the Shanghai Futures Exchange was 24,413 yuan per ton (including VAT), increasing by about 20.7% year-on-year. Faced with an environment of both opportunities and challenges, CHINAHONGQIAO has demonstrated strong operational resilience. During the period, CHINAHONGQIAO's sales of aluminum alloy products amounted to 2.811 million tons, with an average selling price rising 18.7% year-on-year to 21,192 yuan per ton (excluding VAT). Sales of alumina products reached 6.917 million tons, an increase of 8.6% year-on-year, with an average price of 2,327 yuan per ton; sales of deep-processed aluminum alloy products were 444,000 tons, with an average price of 23,436 yuan per ton, reflecting respective year-on-year increases of 23.2% and 13.4%. During the period, the profitability of these two major business segmentsaluminum alloy products and deep-processed aluminum alloy productssignificantly strengthened, effectively boosting CHINAHONGQIAO's overall gross margin. Data shows that in the first half of the year, revenues from CHINAHONGQIAO's aluminum alloy products and deep-processed aluminum alloy products were 59.575 billion yuan and 10.395 billion yuan, respectively, accounting for 68.1% and 11.9% of total revenue; during the same period, the gross profit from these two segments reached 22.944 billion yuan and 3.399 billion yuan, corresponding to gross margin rates of 38.5% and 32.7%, reflecting increases of 13.3 percentage points and 9.4 percentage points year-on-year. As a result, CHINAHONGQIAO's overall gross profit for the first half of the year rose to 27.526 billion yuan, with a corresponding gross margin of 31.5%, an increase of 5.8 percentage points year-on-year; the net profit attributable to shareholders also surged by 39.2% year-on-year, reaching 17.21 billion yuan. The sustained high growth of CHINAHONGQIAO's profitability is not accidental; its underlying logic lies in the companys meticulous construction over the years of a complete closed-loop industrial chain encompassing mining, alumina, primary aluminum, deep processing of aluminum, new materials, and recycled aluminum. At the upstream level, through equity participation in the Guinea Winning Alliance, the company has secured stable supplies of low-cost bauxite, continuously improving its self-sufficiency in bauxite. In the alumina segment, a globally distributed capacity layout ensures a high self-sufficiency rate for alumina, effectively smoothing out the impact of raw material price fluctuations on costs. On the energy front, in addition to self-owned power plants in Shandong, CHINAHONGQIAO is also vigorously developing hydropower, photovoltaics, and other diversified clean renewable energy sources in Yunnan, further enhancing its cost competitiveness. It is this deep integration across the entire industrial chain that enables CHINAHONGQIAO to maintain strong profit resilience in the face of rising raw material and energy prices, changes in overseas resource policies, and market fluctuations. Definite Investment Opportunities Amid Tight Supply-Demand Balance The strong growth reported for the first half of the year is now a settled fact, yet the market's current concern is whether this high prosperity can be sustained. From the perspective of the industrys supply-demand dynamics, the answer is undoubtedly affirmative. On the supply side, there have been concerns about over-production in the domestic market. In the first half of the year, domestic electrolytic aluminum operating capacity reached 45.4 million tons, nearing the compliance capacity limit. I believe that in recent years, with improvements in the industrys supply-demand balance, companies have seized historical opportunities to strive for high production during the high-profit cycle, which is an understandable short-term business behavior. However, from a long-term perspective, the capacity red line cannot realistically be breached. There have been previous reports of central environmental inspections uncovering instances of electrolytic aluminum overproduction, leading to shutdowns of several aluminum plants due to non-compliance. Under rigid constraints, overproduction clearly lacks a realistic foundation for long-term sustainability. On the overseas front, geopolitical conflicts in the Middle East have had a tangible impact on global aluminum supply. Industry organizations predict that it could take as long as 18 months for capacity in the Middle East to fully recover. In 2026, as a result of production stoppages in the Middle East, global aluminum output is expected to decline slightly year-on-year. Some institutions judge that considering the uncertainty of foreign project commissioning timelines, global aluminum supply growth over the next five years is likely to remain below 2%. Looking at the demand side, aluminum, due to its unique material properties, has a wide and diverse range of applications in the national economy. As a structural material, aluminum has only one-third the density of steel but possesses good strength and excellent corrosion resistance; as a functional material, although aluminum's conductivity is inferior to that of copper, its density is only one-third of copper's, and its price is only one-fourth of copper's, presenting a significant cost-performance advantage. Aluminum's downstream demand is dispersed, making it less susceptible to fluctuations in the prosperity of any single sector. Over the past 15 years, global demand for primary aluminum has grown at a compound annual growth rate of 4.1%, with overall demand oscillating steadily with the general economic prosperity. In recent years, new industries such as photovoltaics and new energy vehicles, along with aluminum exports, have been contributing significantly to new growth. It is estimated that the output of aluminum profiles for photovoltaics will rise from 1.42 million tons in 2020 to 4.05 million tons by 2025, while aluminum profiles for new energy vehicles will increase from 0.33 million tons to 1.8 million tons. Additionally, emerging sectors such as energy storage and grid investment are also rapidly contributing to growth. The structural growth trend in demand is clear, providing solid support for aluminum prices to operate at high levels in the long term. Situated within an industry landscape characterized by tight supply-demand balance, CHINAHONGQIAO is undoubtedly a high-quality target that combines industry and company . On one hand, as a global leader in electrolytic aluminum, CHINAHONGQIAO will long benefit from the price increases that yield profit elasticity; on the other hand, its fully integrated layout across the entire industrial chain has constructed a substantial cost moat, enabling it to consistently maintain a strong profitability ahead of its peers amidst industry fluctuations. What is equally rare is that while CHINAHONGQIAO experiences high growth in performance, it consistently prioritizes shareholder returns. In just the first half of this year, CHINAHONGQIAO invested over 5.2 billion Hong Kong dollars in share repurchases and completed cancellations, continuously optimizing its capital structure to effectively enhance earnings per share and, in turn, consistently improve the long-term returns for all shareholders. From an investment perspective, the significance of CHINAHONGQIAO's mid-year report goes far beyond just a solid financial report. While the current market is keen on chasing technology assets driven by grand narratives, CHINAHONGQIAO's performance serves as a reminder to investors that amid the noise, high-quality assets with clear industry logic, solid performance support, and consistent returns of real value to shareholders are equally worthy of long-term attention. At present, the cyclical fluctuations of electrolytic aluminum are being smoothed out by the tight supply-demand reality in the industry, and the certainty of market dynamics is increasing. As a global leader in the aluminum industry, CHINAHONGQIAO, with its performance elasticity and growth certainty, supported by integrated cost advantages and high shareholder returns, is undoubtedly a high-quality target worth including in one's core holdings.