Zhicheng Finance APP learned that Huaan Securities has released a research report, covering China Hongqiao (01378) for the first time and giving it a "buy" rating. China Hongqiao (01378) is a leading company in China's aluminum industry, with a highly self-sufficient full industry chain. It is expected to benefit from the rise of aluminum prices and the release of integration advantages. The company's net income attributable to shareholders is expected to be RMB 14.497 billion, RMB 16.393 billion, and RMB 18.093 billion in 2024, 2025 and 2026, respectively.

The bank pointed out that due to the disturbance of the upstream supply, the supply of alumina is tight, but the demand continues to increase, mainly benefiting from the expectation of improvement in real estate policy stimulation, and the growth of aluminum demand in the automobile and photovoltaic industries. Moreover, China Hongqiao (01378) has a forward-looking layout of Guinea resources and optimizes multimodal transportation industry chains. By the end of 2023, the company's projects in Guinea have a stable annual production capacity of 50 million tons of bauxite. Considering the transfer of the company's electrolytic aluminum production capacity, the advantages of green electricity aluminum are significant. At the same time, the company is also positioned to advanced processing, binds high-quality customers, and is expected to further optimize the company's profitability in the future.

Huaan Securities' main opinions are as follows:

It is a high-quality aluminum company with a complete industrial chain layout and high degree of self-sufficiency.

China Hongqiao started aluminum products business in 2006; In 2014, it co-established Winning Alliance with Singapore's Weilai International Group, Yantai Port, and Guinea UMS Company, forming mining and port companies, and transporting bauxite from Guinea to China; In 2019, it moved electrolytic aluminum production capacity from Shandong to Yunnan and built a 2.03 million tons of hydropower aluminum project by utilizing energy advantages. At present, the company has become a super large enterprise of aluminum industry chain with a complete industrial chain of thermal power, mining, alumina, liquid aluminum alloy, aluminum ingot, aluminum alloy cast rolling products, aluminum busbars, high-precision aluminum sheets, strips and foils, new materials, etc. The company's operating income/net income attributable to shareholders in 2023 were RMB 133.624 billion /RMB 11.461 billion, a year-on-year increase of +1.46%/+31.7%, and its performance is expected to continue to rise in 2024 with the help of rising aluminum prices.

The disturbance of alumina supply, the mismatch of supply and demand, and the difficulty of price decline.

On the raw material side, the domestic environmental protection production reduction, overhaul and grade decline have led to a continuous increase in the dependence on imported bauxite, and the stable supply capability of subsequent raw materials will become one of the competitiveness of the aluminum industry; on the supply side, the domestic illegal production capacity of electrolytic aluminum has been shut down one after another, and the current medium- and long-term production capacity ceiling is controlled at 45 million tons. New production capacity needs to replace the original production capacity index, and the supply increment is limited; on the demand side, the improvement expectation of real estate policy stimulation, and the contribution of aluminum demand growth in the automobile and photovoltaic industry, support the continued upward trend of aluminum prices due to the supply-demand contradiction.

Forward-looking layout of overseas resources, integrated advantages highlighted

On the raw material side, as an important initiator of Winning Alliance, the company has a stable annual production capacity of 50 million tons of bauxite in Guinea by the end of 2023. The company has alumina production capacity in China (17.5 million tons) and Indonesia (2 million tons); In terms of electrolytic aluminum, the company has a total production capacity of 6.46 million tons of electrolytic aluminum, of which 2.03 million tons have been relocated from Shandong to Yunnan and put into operation, and Yunnan Honghe's annual production capacity of 1.93 million tons of low-carbon aluminum project has also officially started. The company utilizes Yunnan's hydropower advantages to reduce the production cost of electrolytic aluminum, and its profitability is expected to be further optimized. In terms of aluminum processing, the company has laid out aluminum foil, can materials, aluminum alloy rims and other products, and opened up high-quality customers both at home and abroad.