The stock price of CHINAHONGQIAO (01378) has shown a strong upward trend in 2024, and the robust performance growth has indeed not disappointed the investors who are actively bullish.

On the evening of December 17, CHINAHONGQIAO released a positive profit announcement, expecting its net income for 2024 to increase by about 95% year-on-year. This means that after achieving a net income of 11.461 billion yuan throughout 2023, under the high baseline, CHINAHONGQIAO's net income is expected to further rise to around 22.3 billion this year.

Breaking it down, in the first half of this year, CHINAHONGQIAO's net income was 9.155 billion yuan. According to the data disclosed in the profit announcement, the company's net income in the second half is around 13.1 billion yuan. This scale of net income not only represents a year-on-year increase of approximately 46%, but also shows a quarter-on-quarter surge of about 44% compared to the first half of this year, indicating that CHINAHONGQIAO's financial data is on a steeper upward trajectory.

According to the profit announcement, the doubling of CHINAHONGQIAO's net income this year is attributed to multiple bullish factors. On one hand, the sales prices of aluminum alloy products and alumina products have increased compared to the same period last year, and the sales volume of alumina has also increased; on the other hand, the procurement prices of the main raw materials, Coal and prebaked anodes, have decreased compared to 2023.

智通财经 APP believes that during the upward cycle of the aluminum industry, CHINAHONGQIAO has achieved 'accelerated growth' as expected, which certainly benefits from favorable conditions, while the company's long-term vertical integration layout has also played a key role in the strong realization of performance growth expectations for CHINAHONGQIAO.

First, looking at the price trend of alumina, due to the ongoing shortage of alumina in the spot market, as of the beginning of this month, the prices of alumina in Guangxi, Guizhou, Henan, ShanDong, Shanxi, and Xinjiang have respectively increased by 2640 yuan/ton, 2635 yuan/ton, 2635 yuan/ton, 2695 yuan/ton, 2685 yuan/ton, and 2685 yuan/ton, reaching 5750 yuan/ton, 5735 yuan/ton, 5765 yuan/ton, 5725 yuan/ton, 5835 yuan/ton, and 6185 yuan/ton, with an average increase of 84.16%.

Under the situation of product sales prices soaring, thanks to the vertical integration layout of CHINAHONGQIAO's upstream and downstream, the company has maximized its advantages on the cost side.

As a global leading manufacturer of Aluminum products, CHINAHONGQIAO has a high self-sufficiency rate for alumina and Electrical Utilities, with the alumina self-sufficiency rate exceeding 100%, while the overall Electrical Utilities self-sufficiency rate is about 52%. Therefore, the primary cost risk exposure for the company lies in the procurement costs of Thermal Coal (used for self-generated power) and pre-baked anodes. In 2024, the procurement costs for these two major raw materials continued to decline, which will undoubtedly help CHINAHONGQIAO further bolster its profits.

Public data shows that in 2024, Coal prices are expected to run weakly and steadily. In the first eleven months, the central price for Thermal Coal was 863 yuan/ton, a decline of 106 yuan/ton compared to the same period last year, representing a decrease of 10.9%. During the same period, pre-baked anode prices also showed an overall downward trend.

According to the clues, the earnings announcement recently disclosed by CHINAHONGQIAO not only confirms that the upward trend of the company's fundamentals is strengthening, but also suggests that the market may have more optimistic expectations for CHINAHONGQIAO's long-term growth prospects.

In terms of upstream resources, under the current tightening of domestic safety and Eco-friendly Concept policies, it is difficult for bauxite mines to resume production, with an increasing dependence on imports. Additionally, the frequent disruptions in overseas supply have further highlighted the resource attributes at the mining level.

However, for CHINAHONGQIAO, the impact of tightening upstream mining supply is expected to be far lower than that of its peers. In fact, CHINAHONGQIAO has already proactively laid out overseas bauxite resources. Looking back to 2014, CHINAHONGQIAO formed the 'Winning Alliance' with Singapore's Wilmar Group, Yantai Port Group, and Guinea's UMS Company, establishing the Bokai Mining Company in Guinea through a joint venture, where CHINAHONGQIAO holds a 22.5% stake. It is reported that the bauxite reserves of the mines under the Winning Alliance amount to 0.624 billion tons and officially commenced production in September 2015. By the end of last year, CHINAHONGQIAO's annual bauxite production capacity in Guinea has reached 50 million tons, ensuring a stable raw material supply capability. Moreover, to ensure alumina production, CHINAHONGQIAO has also signed long-term contracts for procuring bauxite with companies in Guinea, Australia, and other countries.

In addition to actively exploring mines globally, CHINAHONGQIAO is also responding to calls for a strong push towards energy transformation under the 'dual carbon' background. It is reported that CHINAHONGQIAO will relocate a total of 3.96 million tons/year of capacity to Yunnan in the future, accounting for 61.3% of its total capacity. Meanwhile, CHINAHONGQIAO is accelerating the construction of photovoltaic power generation and other New energy Fund projects in Yunnan, while continuously coordinating layouts with wind, solar, and hydro energy storage to cope with the impact of the local dry season. Considering that hydropower aluminum has a cost advantage over coal-fired aluminum, it is easy to foresee that CHINAHONGQIAO's strategy of vigorously developing hydropower aluminum will also help it unleash greater profit elasticity in the future.

As time progresses and 2024 approaches, CHINAHONGQIAO's growth certainty may further increase in the new year. Currently, domestic electrolytic aluminum production capacity is approaching its 'ceiling', while overseas incremental releases are slow, and recycled aluminum is constrained by waste aluminum supply, resulting in limited future supply increments. On the demand side, new demand represented by the lightweighting of Autos, photovoltaic sector, and Ultra High Pressure construction continues to grow rapidly under the 'dual carbon' policy, and the tight supply-demand relationship will inevitably lead to continued upward pressure on electrolytic aluminum prices.

In this context, with an upstream foresight in laying out overseas bauxite resources, and vigorously developing hydropower aluminum projects, CHINAHONGQIAO enjoys scale and cost advantages, and the company’s performance growth momentum will naturally continue during the industry's upward phase. With CHINAHONGQIAO consistently meeting performance growth expectations, it is naturally worthy for secondary market participants to include it in their Stocks pool for close observation.