We covered Xingfa Aluminum (the “Company”) for the first time and gave it a target price of HK$11.73 and an investment rating of “buy”.

Our target price is equivalent to 5.0 times/3.9 times/3.1 times the price-earnings ratio from 2022 to 2024.

We expect that Xingfa Aluminum's sales of aluminum extruded materials for new energy vehicles will greatly benefit from the rapid development of the NEV industry and become the company's main source of growth in the next three years. The automotive industry is the most important consumer of aluminum. Two factors will drive the increase in aluminum consumption: higher penetration rate of new energy vehicles and higher intensity of use of aluminum in new energy vehicles.

Xingfa Aluminum has a significant competitive advantage in developing and producing aluminum extruded materials for new energy vehicles. Xingfa Aluminum has significant competitive advantages in aluminum alloy material research, automotive aluminum extrusion material development, extrusion mold design and manufacture, and aluminum extrusion material production. Xingfa Aluminum has successfully developed extruded aluminum materials for new energy vehicles and has entered the stage of developing models with automobile companies.

Catalysts: rapid growth in sales of new energy vehicles; recovery of the domestic real estate market.

Core risks: The development of aluminum extrusions for vehicles falls short of expectations; fierce competition from other aluminum extrusion manufacturers; the domestic real estate market continues to weaken.