China Great Wall: Initiates "Buy" rating on CHINAHONGQIAO (01378); electrolytic aluminum profitability stands out, high dividend payout highlights investment value.

China Great Wall released a research report estimating that CHINAHONGQIAO (01378) will record net profit attributable to shareholders of RMB 35.4 billion, RMB 36.9 billion, and RMB 39.1 billion for 2026-2028, corresponding to PE of approximately 5.0/4.8/4.5x, and initiated coverage with a "Buy" rating. The bank believes that the electrolytic aluminum industry is in a high-prosperity phase, with domestic capacity constraints, overseas supply disruptions, and demand upgrading jointly supporting the aluminum price center. As a globally leading electrolytic aluminum enterprise, the company has an integrated advantage spanning bauxitealuminaelectrolytic aluminumaluminum processing, and, combined with Yunnan green aluminum capacity, volume ramp-up in deep processing, and sustained buybacks and stable dividends, its earnings stability and shareholder return attributes stand out. China Great Wall's main views are as follows: Event: In 2026H1, the company achieved net profit attributable to shareholders of RMB 17.210 billion, a significant year-on-year increase of approximately 39.20%. In 2026H1, the company achieved operating revenue of approximately RMB 87.506 billion, up approximately 8.0% year on year; gross profit of approximately RMB 27.526 billion, up approximately 32.3% year on year; net profit attributable to shareholders of approximately RMB 17.210 billion, up approximately 39.2% year on year; and basic earnings per share of approximately RMB 1.73 (approximately RMB 1.31 in the same period of 2025). The company's high earnings growth was mainly driven by the release of profit elasticity in its core business from rising aluminum prices, as well as structural optimization from both higher volumes and prices in the deep processing business, which, together with the continued advancement of green power layout and cost reduction and efficiency enhancement, comprehensively drove a significant improvement in profitability. Key point 1: Electrolytic aluminum price elasticity fully realized; deep processing achieves both volume and price growth, improving structure From the earnings breakdown, in the first half of 2026 the company: Aluminum alloy products achieved operating revenue of RMB 59.575 billion, up 14.84% year on year; cost of RMB 36.632 billion, down 5.55% year on year; gross profit of RMB 22.944 billion, up 75.25% year on year; and gross margin of 38.51%, up 13.28 percentage points year on year. Among these, aluminum alloy product sales reached approximately 2.811 million tonnes, down approximately 3.3% from 2.906 million tonnes in the same period last year, while the average selling price reached RMB 21,192/tonne (excluding tax), up 18.7% from the same period last year. Against the backdrop of a significant upward shift in the electrolytic aluminum price center, the profit elasticity of the company's aluminum alloy products was fully released, becoming the core source of the high profit growth in the first half. Alumina products achieved operating revenue of RMB 16.094 billion, down 22.08% year on year; cost of RMB 15.087 billion, up 2.56% year on year; gross profit of RMB 1.007 billion, down 83.06% year on year; and gross margin of 6.26%, down 22.53 percentage points year on year. Among these, alumina product sales were approximately 6.917 million tonnes, up approximately 8.6% from the same period last year, while the average selling price was approximately RMB 2,327/tonne (excluding tax), down 28.3% year on year. The alumina segment showed "higher volume, lower price," creating a certain drag on profit. Aluminum alloy deep processing products achieved operating revenue of RMB 10.395 billion, up 39.74% year on year; cost up approximately 22.54% year on year; gross profit of approximately RMB 3.399 billion, up 96.50% year on year; and gross margin of 32.70%, up 9.45 percentage points year on year. Among these, aluminum alloy deep processing product sales were approximately 444,000 tonnes, up 23.2% from the same period last year, while the average selling price reached RMB 23,436/tonne (excluding tax), up approximately 13.4% from the same period last year. The company's deep processing segment achieved both volume and price growth, and directions such as lightweighting for new energy vehicles and high-end aluminum materials are expected to continue contributing structural upgrading elasticity. Key point 2: Large-scale buybacks combined with debt structure optimization continue to strengthen shareholder returns In 2026H1, the company used more than HKD 5.200 billion in total for share buybacks and completed cancellation, continuously optimizing the share capital structure and enhancing earnings per share. The company did not declare an interim dividend for 2026H1, but during the period it recognized the 2025 final dividend of HKD 165.00 cents per share; total cash dividends for 2025 were approximately RMB 16.386 billion, corresponding to a dividend payout ratio of 65.38%. The company's controlling shareholder, CHINAHONGQIAO Holdings, increased its shareholding in the company by a total of 41.50 million shares on June 8 and June 10, with a total increase amount of approximately HKD 1.096 billion, corresponding to a weighted average increase price of approximately HKD 26.42/share, reflecting the controlling shareholder's confidence in the group's future prospects and long-term development. On the balance sheet, as of June 30, 2026, the company's asset-liability ratio was approximately 40.5%, down from 42.2% at the end of 2025; bank borrowings were approximately RMB 35.865 billion, down 17.4% from RMB 43.412 billion at the end of 2025; cash and cash equivalents were approximately RMB 46.144 billion; and net cash inflow from operating activities was approximately RMB 22.149 billion, with cash flow and debt repayment capacity remaining sound. Key point 3: Long-term layout in resources + green power, coordinating to consolidate raw material security In terms of long-term layout, the Yunnan green aluminum innovation park, new energy projects, lightweight materials base, and bauxite procurement and reserves remain key focuses of subsequent capital expenditure. In terms of power security, the company announced on September 11 that its indirect subsidiary Yunnan Hongqiao plans to acquire 100.00% equity of Weiqiao Xinchuang for approximately RMB 240 million. Weiqiao Xinchuang mainly engages in photovoltaic new energy power generation business in Yunnan and owns 2 grid-connected photovoltaic power generation projects with a total rated installed capacity of 170MW. At the same time, Shandong Hongqiao Aluminum Industry Holding (a non-wholly-owned subsidiary of the company) plans to proceed with a private placement of no more than RMB 12.000 billion on July 31, 2026, with proceeds intended for wind power, photovoltaic power, aluminum deep processing, repayment of bank loans, and supplementing working capital. If smoothly advanced, this is expected to further enhance green power self-supply capability and the stability of electricity use for electrolytic aluminum, and strengthen cost resilience and low-carbon aluminum competitiveness through power generation and consumption synergy. In terms of resource security, the company issued RMB 10.200 billion of offshore RMB zero-coupon convertible bonds in May 2026, with net proceeds planned to be used 40% for bauxite procurement and reserves, 30% for repayment of existing debt, 10% for overseas project investment, and 10% for future share buybacks, further reflecting the company's coordinated arrangements for raw material security, overseas resource projects, and shareholder returns. Risk warnings: Risk of sharp aluminum price fluctuations; risk of fluctuations in raw material and energy costs such as alumina, bauxite, coal, and power; risk that overseas resource projects progress less than expected; risk that downstream demand falls short of expectations; risk that the private placement progresses less than expected.