30 billion buyback plan boosts confidence, Zhaoyin International raises target price for CHINAHONGQIAO (01378) to 27 Hong Kong dollars.

China Hongqiao International issued a research report, maintaining a "buy" rating for CHINAHONGQIAO (01378) and significantly raising the target price from HKD 20.6 to HKD 27. The bank pointed out that CHINAHONGQIAO's performance in the first half of 2025 was impressive, despite not yet announcing a mid-term dividend. However, the newly launched large-scale share buyback plan effectively boosted market confidence, coupled with the tight supply and demand balance in the aluminum industry and cost improvements, providing strong certainty for future profit growth for the company. The report stated that in the first half of 2025, CHINAHONGQIAO achieved a net profit of 12.3 billion yuan, a year-on-year increase of 35%, consistent with the profit forecast released in June; excluding the fair value loss of convertible bonds (CB), the core net profit reached 14.9 billion yuan, a year-on-year increase of 42%. In terms of business segments, all three core businesses achieved revenue and profit growth. Aluminum alloy products (accounting for 64% of revenue in the first half) generated revenue of 51.9 billion yuan, a year-on-year increase of 5%, with sales volume increasing by 2.4% to 2.91 million tons, and the average selling price (ASP) increasing by 2.7% to 17,853 yuan/ton. Benefiting from a unit cost increase of only 1.9%, the unit gross profit margin increased by 5.4% to 4,506 yuan/ton; aluminum oxide business (accounting for 26% of revenue in the first half) saw revenue surge by 28% to 20.7 billion yuan, with a 10% increase in sales volume to 6.37 million tons, an ASP increase of 5% to 3,243 yuan/ton, and a unit gross profit margin increase of 25% to 933 yuan/ton; aluminum processing products (accounting for 10% of revenue in the first half) saw revenue increase by 6.5% to 8 billion yuan, with sales volume increasing by 3.4% to 392,000 tons, an ASP increase of 2.9% to 20,615 yuan/ton. Supported by stable unit costs, the unit gross profit margin increased by 14% to 4,815 yuan/ton. It is worth noting that CHINAHONGQIAO did not continue its tradition of mid-term dividends this year, which slightly surprised the market. However, the company immediately launched a new share buyback plan to offset this - planning to spend a minimum of 3 billion Hong Kong dollars to repurchase shares, accounting for 1.4% of the total share capital and 4.5% of the freely tradable shares, with the repurchase period ending in May 2026. Zhongyin International's analysis pointed out that this buyback not only reflects management's firm confidence in the company's future development but also effectively counteracts the potential dilutive impact of convertible bond conversions. In fact, CHINAHONGQIAO has conducted multiple buybacks this year, completing a buyback of approximately 62.3 million shares (0.67% of total share capital) in the first quarter and announcing a maximum of 2 billion yuan share repurchase plan in April. Looking ahead, based on two core logics, Zhongyin International has raised CHINAHONGQIAO's profit forecast for 2025-2027 by 12%-14%: on one hand, the current aluminum industry is highly tight on the supply side, with an industry operating rate of 98% and aluminum prices expected to remain high; on the other hand, expectations of a decline in prices for raw materials such as coal will further alleviate cost pressure. In terms of profit sensitivity, Zhongyin International estimates that for every 1% increase in aluminum prices, CHINAHONGQIAO's profit will increase by 3%; for every 1% decrease in coal prices, the company's profit will increase by 0.5%. The dual benefits of cost and product price are expected to continue to increase profits. In terms of valuation, CHINAHONGQIAO's average forward P/E ratio over the past ten years has been 6 times. Zhongyin International's target price of HKD 27 is based on an expected P/E ratio of 8.6 times in 2026 (1 standard deviation higher than the historical average), reflecting both the industry's sustained upward cycle support and the premium for the company's improved balance sheet. Despite CHINAHONGQIAO's recent share price increase, the dividend yield is expected to reach 7.9% (assuming a payout ratio of 60%), making valuation still attractive.