Futu Financial's app learned that Cinda Securities has released a research report that covers China Hongqiao (01378) for the first time and gives the company a "buy" rating. It is estimated that the company's EPS for 2024-2026 will be 1.70, 1.94, and 1.95 yuan per share respectively. The company's valuation is at a low level compared to its industry peers. Considering that the optimization of the company's electrolytic aluminum energy structure is expected to lead to a decrease in electricity costs and the integration of the industry chain is expected to benefit the company in fully improving the profitability of the aluminum industry chain.

The bank expects the global demand growth rate for primary aluminum from 2023 to 2025 to be about 1.65% per year. The long-term supply-demand gap may expand, and the aluminum price may continue to maintain an upward trend in the long term. As of the end of March 2024, China Hongqiao (01378)'s Guinea project maintained a stable annual production capacity of about 50 million tons of bauxite and an annual total capacity of 19.5 million tons of alumina (including 17.5 million tons from domestic production and 2 million tons from Indonesian production). The total electrolytic aluminum production capacity is 6.46 million tons per year, and the aluminum alloy deep processing production capacity is 1.17 million tons per year.

Cinda Securities' main points are as follows:

As a leader in the aluminum industry chain integration, the company is expected to enjoy high profitability elasticity.

After many years of development, the company has basically formed a whole industrial chain operating pattern from upstream to downstream of electrolytic aluminum, showing significant scale and efficiency benefits.

The company has a high degree of self-sufficiency in upstream raw materials, and its cost elasticity is slowing down. The current self-sufficiency rate of alumina is 100%, reflecting outstanding integration advantages. The mining of bauxite in Guinea guarantees the supply of bauxite raw materials for the company, and the company also develops the supply of Australian bauxite, providing a diversified supply channel of ore and further ensuring the stability of the company's raw materials.

The company's electrolytic aluminum profit is stable, and its energy structure improvement is significant. As of the end of 2023, the total electrolytic aluminum production capacity of the company was 6.46 million tons per year, with a combined capacity of 4.43 million tons per year in Shandong Province and 2.03 million tons per year in Yunnan Province, of which the main project of the 2.03 million-ton-per-year electrolytic aluminum production capacity in Yunnan has been completed. In addition, the company still has 1.93 million tons per year of electrolytic aluminum production capacity to be relocated to Honghe Prefecture in Yunnan Province. After the relocation of all the projects, the company will transfer a total of 3.96 million tons per year of production capacity to Yunnan, accounting for 61.3% of the total production capacity. The increase in the proportion of electrolytic aluminum production capacity in Yunnan, where hydropower prices are lower than those of Shandong Province, is expected to reduce the comprehensive cost of electricity consumption of the company's total production capacity.

The company's recycled aluminum and automotive lightweighting projects are expected to help low-carbon development. As of the end of September 2023, the company has an aluminum processing capacity of 1.17 million tons per year. In addition, after the full completion of the Sino-German Hongshun Circular Economy Technology Industry Project, it will form an annual production capacity of 500,000 tons of recycled aluminum and a recycling and dismantling capacity of 100,000 scrapped vehicles per year. The investment in the company's recycled aluminum production capacity may further optimize the company's energy structure and increase the premium of its products.

The company's dividend ratio remains at a relatively high level. Since its listing in 2011, the company has implemented 13 dividends, with a cumulative net profit of 96.156 billion yuan and cumulative cash dividends of 27.383 billion yuan, with an average dividend payout rate of 28.48%. The average dividend payout rate of the company is at the forefront of the industry, with steady operations, stable performance growth, and a relatively high level of dividend payout ratio, providing strong safety margin.

The company's dividend payout ratio remains at a relatively high level. Since its listing in 2011, the company has implemented 13 dividends, with a cumulative net profit of 961.56 billion yuan and cumulative cash dividends of 273.83 billion yuan. The average dividend payout ratio of the company is at the forefront of the industry, with stable operations, stable performance growth, and a relatively high dividend payout ratio, providing strong safety margin.

The company's valuation may be re-evaluated due to the introduction of strategic investors by its subsidiaries.

In December 2023, the company's subsidiary introduced strategic investors and received RMB 2.9626 billion for the subscription of 4.705% equity of Shandong Hongtuo New Capital. Based on the reference equity price of the subsidiary, the market value of Shandong Hongtuo held by the company is about 56.7 billion yuan. Considering that the company's lightweight material base and Bohai Science and Technology City Industrial Park projects are under construction, the value of the company may be re-evaluated.

The aluminum price may continue to maintain an upward trend in the long term.

The supply side is affected by the domestic production capacity ceiling, and new capacity is limited. The incremental production capacity of overseas electrolytic aluminum has no significant increase, and it is affected by factors such as the "dual carbon" policy, energy consumption control, and regional power shortage. The supply elasticity of primary aluminum may gradually weaken. Traditional demand may show marginal improvement under the policy of stabilizing growth and expanding domestic demand. The aluminum demand in the new energy field, such as new energy vehicles and photovoltaics, may contribute to new incremental demand. Against the backdrop of global green and low-carbon development, the bank believes that the demand for electrolytic aluminum still has resilience. It is expected that the global demand growth rate for primary aluminum from 2023 to 2025 will be about 1.65% per year. The long-term supply-demand gap may expand, and the aluminum price may continue to maintain an upward trend in the long term.