Zheshang: Maintain a "buy" rating on CHINAHONGQIAO (01378), with outstanding investment value for high dividends.

Zheshang released a research report stating that the aluminum electrolysis industry is in an upturn phase, benefiting from the rise in aluminum prices. Assuming a conservative average aluminum price of 23,500/25,000/26,000 yuan/ton for 2026-2028, and an average aluminum oxide price of 2,700 yuan/ton, it is estimated that the net profit attributable to the parent company will be 34.2 billion yuan, 40.4 billion yuan, and 43 billion yuan in 2026-2028, with corresponding P/E ratios of 9X, 8X, and 7X based on the current price. If the dividend ratio is maintained in 2025, the company's dividend yield is approximately 7%, highlighting its investment value and maintaining a "buy" rating. Zheshang's main points are as follows: Performance highlights: In 2025, the company achieved operating income of 162.4 billion yuan, a year-on-year increase of 4%; net profit attributable to the parent company was 22.6 billion yuan, a year-on-year increase of 1.2%, with earnings per share of 2.38 yuan, a year-on-year increase of 1.0%. The company's performance has steadily increased, demonstrating outstanding profitability. Key point 1: Steady growth in main business, extension of profit cycle in electrolytic aluminum In 2025, the company's electrolytic aluminum business accounted for approximately 65% of revenue, the largest main business, with aluminum oxide business accounting for about 24% of revenue, and aluminum processing products accounting for about 9%. The gross profit margin of the electrolytic aluminum business was approximately 73%, the aluminum oxide business gross profit margin was approximately 21%, and the aluminum processing business accounted for about 7%. The profitability of the electrolytic aluminum business continues to strengthen: In 2025, the company's electrolytic aluminum (i.e. aluminum alloy products) achieved revenue of about 106.1 billion yuan, a year-on-year increase of 4%; gross profit was 30.2 billion yuan, a year-on-year increase of 20%, with a gross profit margin of 28.5%, up from 24.6% in the same period last year. This growth was mainly due to the average sales price of aluminum alloy products increasing by about 3.8% to around 18,216 yuan/ton year-on-year, sales volume remaining stable compared to the previous year at about 5.82 million tons, and the operating cost per ton decreasing by about 3% year-on-year to approximately 13,034 yuan/ton, down from 13,437 yuan/ton in 2024. Electrolytic aluminum industry supply and demand pattern: Moving from a "slow bull" to a "main uptrend", with upward elasticity opening up and strong constraints on the supply side, leading to an extension of the electrolytic aluminum industry lifecycle. Commodity prices are determined by supply and demand fundamentals, with the market overestimating the speed and potential of future electrolytic aluminum capacity growth, underestimating the possibility of electrolytic aluminum production cuts, and not factoring in the pricing increase for electrolytic aluminum as a "solidified electricity" cost curve. The escalating global geopolitical crisis due to the conflict between the US and Iran has led to a strong expectation of production cuts for aluminum electrolysis in the Middle East, which accounts for about 9% of global electrolytic aluminum production. Bahrain Aluminum Industry, Qatar Aluminum Industry, and Alnan Global Aluminum Industry have all announced stoppages due to the impact of the war, with risks such as disruption of aluminum oxide transport, energy stoppages, and direct hits from the war threatening large-scale electrolytic aluminum production capacity. By the end of 2025, Mozambique Aluminum Plant announced that it would cease production in 2026 due to the expiration of its power contract, but this is not an isolated case. According to the bank's statistics, overseas production capacity has accumulated to a reduction of 2.25 million tons from 2021 to 2025. Due to the conflict between the US and Iran, the prices of natural gas and oil have risen again, posing a challenge of significant cost increase for aluminum electrolysis in regions such as the UK and US. If the conflict lasts longer, continued production cuts are not ruled out. Southeast Asia overseas regions have become the main force for production increase, however, China has committed not to build coal-fired power plants externally, making it difficult for new energy power to independently meet the electricity demand of electrolytic aluminum, limiting the growth rate of global electrolytic aluminum production capacity, with project progress far lower than market expectations. Stable revenue growth in aluminum oxide business: In 2025, the company's aluminum oxide business achieved revenue of approximately 38.8 billion yuan, a year-on-year increase of 4.0%, with aluminum oxide sales volume increasing by 22.7% to 13.4 million tons, an increase of 2.48 million tons year-on-year. The aluminum processing business accounts for a relatively small percentage and remains stable: The company's aluminum alloy processing products (deep processing) achieved revenue of about 15 billion yuan, a year-on-year increase of 4.0%, with sales volume of about 716,000 tons, unchanged from the previous year, and an average sales price increase of 3.1% to about 20,874 yuan/ton. However, due to the decrease in production capacity utilization and the cancellation of export tax rebates, gross profit decreased to 2.9 billion yuan, with a gross profit margin decreasing from 25.9% to 19.2%. Key point 2: Establishing a stable return system, high dividend payout ratio + repurchase The company focuses on shareholder returns, emphasizing long-term investment value. In 2025, the company paid out a total of 1.65 Hong Kong dollars (approximately 1.50 RMB per share) in dividends, with a dividend amount of approximately 14.5 billion RMB, a dividend payout ratio of approximately 64%, and an annual repurchase amount of 5.6 billion Hong Kong dollars, accounting for 23% of the annual net profit attributable to the parent company. Key point 3: Continued improvement of debt structure, reducing financial pressure and impairment losses The company continues to optimize its debt structure, significantly reducing its asset-liability ratio: By reasonably allocating short-term and long-term debts, the company effectively reduces financing costs and financial pressure. As of the end of 2025, the company's total liabilities were 103.7 billion RMB, a decrease of approximately 6.2% from the end of 2024, with an asset-liability ratio decreasing from 48.2% to 42.2%. In terms of debt maturity structure, current liabilities due within one year decreased from 77 billion yuan to 54.1 billion yuan, a reduction of 29.7%, while non-current liabilities due after one year increased from 33.6 billion yuan to 49.6 billion yuan, extending the company's debt duration and easing short-term payment pressure. Convertible bond repayments completed, with a gradual decrease in the impact of impairment of financial instruments: In 2025, the company reported a fair value change loss of approximately 3.8 billion yuan on financial instruments, an increase of 1.6 billion yuan compared to the previous year. With the completion of key convertible bond repayments, the subsequent impact is expected to decrease. The company's 300 million US dollars convertible bond issued in 2021 had its conversion price adjusted to 5.68 Hong Kong dollars on May 30, 2025, and was fully converted into 4 billion shares on January 8, 2026, reducing the company's debt size. The company successfully issued a 300 million US dollars convertible bond in March 2025 (due in 2030, with a coupon rate of 1.50%, initial conversion price of 20.88 Hong Kong dollars, later adjusted to 19.36 Hong Kong dollars on May 30, 2025), raising approximately 295 million US dollars to optimize its capital structure. Key point 4: Strategic investments in new energy & mining, strengthening the foundation of low carbon and supply chain security Green low-carbon transformation: The Yunnan Green Low-Carbon Demonstration Industrial Park and Wenshan Smart Aluminum Project have been officially put into operation, becoming important benchmarks for industrial upgrading and green transformation. The integrated new energy project "Wind-Green Storage" is steadily advancing, with the first batch of photovoltaic projects fully connected to the grid, increasing the proportion of clean energy. As of 2025, the group has developed approximately 2GW of centralized photovoltaic power plants in Yunnan Province. Overseas mining resources: The company is developing the West Simandou iron ore project (WCS) in Guinea, which currently boasts 1.8 billion tons of high-grade iron ore reserves, with an iron content exceeding 65.5wt%. On November 11, 2025, the West Simandou iron ore project was officially put into operation, with the first shipment of iron ore setting sail from the Mariba Port in Guinea, marking the project's entry into commercial operation, which may effectively increase the company's profits in the future. Risk warning: Risks of significant commodity price fluctuations, policy changes, etc.