HSBC: Solid fundamentals + attractive dividend yield maintain a "buy" rating for CHINAHONGQIAO (01378) with a target price of HK$17.10.

HSBC released a research report on March 27, predicting that aluminum prices will receive strong support in the coming months, as China's capacity limit policy is unlikely to change, and the demand resilience will be supported by renewable energy and sustained economic stimulus policies. The bank expressed confidence in CHINAHONGQIAO (01378) stable fundamentals, as well as its attractive dividend yield (about 10%), maintaining a "buy" rating on the stock, and a target price of HK$17.10. HSBC believes that CHINAHONGQIAO's strong earnings performance will continue. The company is confident in maintaining strong earnings performance in the first quarter of 2025. Limited by a capacity limit of 45 million tons and moderate single-digit demand growth, aluminum prices are currently maintained at a high level (spot price around RMB 20,700 yuan/ton). At the same time, the company believes that the downside for alumina prices is limited, as its cost support is at around RMB 3,000 yuan/ton. Processed aluminum prices have performed better than expected, with the company gaining market share and providing higher value-added products. The cancellation of export tax rebates mainly affects low value-added products, with a minimal impact on overall export demand. In terms of costs, the fluctuation of alumina prices should be controllable, as the company procures alumina through long-term contracts. Moreover, the overall energy cost in the first quarter of 2025 has decreased by 1-2 cents/kWh compared to 2024's RMB 0.47 yuan/kWh (including VAT). Even with the rise in carbon anode prices in the first quarter, unit costs are still expected to remain stable. HSBC pointed out that the company has reiterated its plan to inject its key aluminum and alumina assets into its A-share listed subsidiary. On March 26, 2025, the company completed a $300 million convertible bond issuance, with $200 million used to replace previous high-interest convertible bonds, and $100 million for share buybacks to reduce dilution. Management reiterated the company's commitment to increasing shareholder returns, maintaining a dividend payout ratio of at least 50%. HSBC also added that the company has invested $400 million in the Simandou iron ore project in the form of a loan with an interest rate of approximately 5%+SOFR, and has committed to a total investment of $1.8 billion in the coming years. In 2024, the company transferred 1.5 million tons of aluminum capacity from Shandong to Yunnan, and plans to transfer another 500,000 tons of capacity to Yunnan before the upcoming rainy season. The company continues to advance its renewable energy projects to meet the policy requirement of 20% green energy usage.