CMB International has released a research report stating that China Hongqiao (01378) delivered a solid core net profit performance in its 2026 interim results, driven by higher aluminum product prices and effective cost controls. While market concerns over increased aluminum supply in 2027 persist, the firm emphasizes that the current forecast price-to-earnings ratios of 5.8 times for 2026 and 6.4 times for 2027 provide ample safety margin against potential aluminum price declines.
Consequently, CMB International has reaffirmed its "Buy" rating on China Hongqiao, setting a target price of HK$39, implying an upside of approximately 70% from current levels. Despite the fact that the alumina segment exerted some drag on performance due to falling prices during the reporting period, the overall earnings picture remained robust.
According to the financial report, China Hongqiao achieved a net profit of RMB 17.2 billion (reported basis) in the first half of 2026, marking a 39% year-on-year increase. After adjusting for the fair value changes of convertible bonds, core net profit reached RMB 16.3 billion, up 10% year-on-year. The aluminum alloy products segment, as the company's primary revenue driver, showcased strong momentum, with segment revenue climbing 15% year-on-year to RMB 59.6 billion. Although sales volume dipped slightly by 3%, the average selling price rose 19% to RMB 21,200 per tonne. Benefiting from a 2.4% reduction in costs, unit gross profit surged 81% to RMB 8,200 per tonne, while the gross margin expanded by 13.3 percentage points to 38.5%.
Additionally, the aluminum processing products segment saw revenue jump 41% year-on-year to RMB 16.7 billion (including RMB 10.4 billion from deep-processed goods), with gross margin improving by 8.9 percentage points to 32.2%. Taking a prudent view on alumina margins and expenses, CMB International has trimmed its net profit forecasts for China Hongqiao for 2026 to 2028 by 6% to 7%, while lowering the target price from HK$45 to HK$39, which corresponds to 10 times the projected 2026 earnings.