Recently, affected by external news disturbances, the upward trend of the nonferrous metal sector, which has been "singing all the way" since the beginning of this year, has slowed down somewhat.

On the secondary market, stock price adjustments caused by news often present investment opportunities. The Smart Finance app noticed that in the face of fluctuations in the stock price, chinahongqiao (01378)'s controlling shareholder, chinahongqiao holdings limited (hereinafter referred to as "hongqiao holdings"), responded quickly with consecutive counterattacks.

According to the announcement released by chinahongqiao, hongqiao holdings purchased shares in chinahongqiao on June 14th and June 17th. The relevant announcement shows that on June 14th, hongqiao holdings increased its shareholding by 6.8725 million shares from the open market, accounting for approximately 0.073% of the total share capital of chinahongqiao. After the increase in shareholding was completed, the shareholding ratio of the controlling shareholder increased to 64.2%; three days later, hongqiao holdings again increased its shareholding by 6.645 million shares from the open market, accounting for approximately 0.07% of the total share capital of the company. After the increase in shareholding was completed, the shareholding ratio increased to 64.27%.

In just two trading days, hongqiao holdings has invested more than HKD 150 million to increase its shareholding in chinahongqiao, which indicates its long-term confidence in the company's development.

From the perspective of Smart Finance app, at this point in time, hongqiao holdings frequently increases its shareholding in the company, and its confidence stems from the crucial period when chinahongqiao's fundamentals are turning upward. The growth prospects of the company may be underestimated by the secondary market. The latest evidence of this is the latest profit announcement disclosed by chinahongqiao, which again releases a strong value signal to the market. Recently, chinahongqiao announced that benefited from the rise in aluminum product prices and other bullish factors, the net profit of the company in the first half of this year is expected to increase by about 220% compared with the same period last year.

Looking back at historical data, chinahongqiao's net profit in the first half of last year was 2.972 billion yuan. Based on the content of the announcement, it is expected that this data will increase significantly to about 9.51 billion yuan in the first half of this year.

It is worth mentioning that for chinahongqiao, 2023 was a typical year of low start and high finish, gradually entering the good state. Compared with the flat performance in the first half of that year, the net profit of the company in 2H reached 9.526 billion yuan. Compared with the aforementioned data, the scale of chinahongqiao's net profit in the first half of this year is expected to remain unchanged from the second half of last year and continue to maintain its historical high level.

The Smart Finance app learned that there are two main reasons for china hongqiao's strong profitability performance in the first half of this year:

On the one hand, the purchase prices of the company's main raw materials coal and prebaked anode carbon blocks have dropped somewhat during the reporting period, releasing the company's profit potential to a certain extent.

Breaking down the production process of electrolytic aluminum, the cost of aluminum companies mainly includes electricity, alumina, and prebaked anode carbon blocks. Thanks to hongqiao's in-depth layout of the entire aluminum industry chain, the company's alumina self-sufficiency rate can reach 100%, so its largest risk exposure on the raw material side is prebaked anode carbon blocks and coal used for thermal power generation.

According to relevant institutions' calculations, for each 500 yuan decline in the purchase price of prebaked anode carbon block, hongqiao's profit will increase by 950 million yuan; for each 100 yuan decline in the price of coal, the profit will increase by 710 million yuan. Since 2024, the low-running prices of coal and prebaked anode carbon blocks have obviously stimulated the release of the company's profits to a greater extent.

On the other hand, in the first half of this year, the sales prices of chinahongqiao's aluminum alloy and alumina products have both increased compared to the same period last year, and the sales volume has also increased. Against the background of the simultaneous increase in the quantity and price of the main products, it is not difficult to understand that the company's profitability has continued to maintain a strong momentum.

From the perspective of chinahongqiao's performance trend in recent years and the latest profit announcement, the company can be regarded as one of the targets with the highest profit elasticity in the industry. Although chinahongqiao's net profit scale in the first half of this year has reached near its historical highest level, the Smart Finance app believes that the company's growth potential may not have been fully released yet.

Firstly, from the perspective of raw materials, given that domestic environmental protection restrictions, overhaul production reduction, and declining grade are increasingly prominent, domestic aluminum companies will continue to rely on imported bauxite. Therefore, the stable supply capability of subsequent raw materials will become one of the important factors for judging the high and low core competitiveness of aluminum companies.

Currently, Chinahongqiao obtained stable global raw material supply through holding equity in Winning Consortium. Among them, Guinea has a bauxite production capacity of 50 million tons. With the expansion and landing of the Dabylon port area, it is expected to continue to grow. At the same time, Hongqiao has also developed the supply of bauxite in Australia and laid out integrated bauxite and alumina capacity in Indonesia. The global layout of the aluminum industry chain has enabled the company's overall self-sufficiency rate of alumina to exceed 100%, and stable raw materials have provided important support for Chinahongqiao's sustainable development.

Secondly, from the perspective of the trend of aluminum prices, the market may take a closer look at the performance of Chinahongqiao in the future. The data shows that the closing price of LME aluminum in May was US $2,702/ton, with a cumulative increase of 4.67%. The main force of Shanghai aluminum closed at 21,445 yuan/ton, with a cumulative increase of 4.2%; in terms of spot, the average price of spot in East China in May was 21,020 yuan/ton, with an accumulative increase of 710 yuan/ton, and the average price of spot in South China was 21,220 yuan/ton, with an accumulative increase of 680 yuan/ton.

In the view of the Zhitong Finance APP, the underlying logic behind the strong run of aluminum prices is that the supply constraints of the aluminum industry are becoming stricter at the current stage, while demand is in a continuous stage of recovery and growth, which is further strengthening the pattern of easy rise and difficult fall of aluminum prices.

As far as supply-side is concerned, as of the end of May, the domestic electrolytic aluminum production capacity in operation was about 45.19 million tons, and the domestic electrolytic aluminum operating capacity was about 42.97 million tons. Only the Inner Mongolia Huayun Phase III project is currently being put into operation; the remaining domestic new electrolytic aluminum capacity adds up to 750,000 tons, and the potential total supply increase space in the future will be very limited. On the other hand, in recent years, new demands represented by automobile lightweight, photovoltaic sector, and UHV construction have been growing at a high speed under the "dual carbon" policy, providing strong support for aluminum consumption.

Not to mention that, in order to comply with the requirements of the dual carbon era, Chinahongqiao has proactively adjusted its energy structure. At present, it is gradually relocating some of its production capacity to Yunnan. When all the relocated projects are landed, the electrolytic aluminum production capacity in Yunnan region will reach 3.96 million tons/year, accounting for 61.3%. By then, the company's green aluminum advantage will be further highlighted.

In summary, the profit announcement released by Chinahongqiao early on is actually just a "preview" before the company's profit is "fully fired". With the continued release of aluminum price upward momentum and the company's integration advantage, Hongqiao's profit scale is expected to further increase.

Finally, looking back at the trend of the capital market, taking a "reference" from the recent active long positions of the company's controlling shareholder, Hongqiao Holdings, investors in the secondary market at this stage may also look forward to the future of Chinahongqiao, which has sufficient growth momentum.