Zhongtai Securities released a research report stating that it maintains a 'buy' rating for Chinahongqiao (01378), assuming that aluminum prices for 2024-26 are 21/23/25 thousand yuan/ton and raising the assumption of alumina prices for 2024-26 to 3500/3500/3750 yuan/ton. It is expected that the company's net income for 2024-26 will be 21/24.8/29.9 billion yuan (previous value of 19/21.7/25.2 billion yuan). Recently, the company issued a positive profit forecast. As of the first half of 2024, the net profit is expected to increase by around 220% compared to the same period last year, and in the first half of 2023, the company achieved a net profit of approximately 2.972 billion yuan. It is expected that the net profit in the first half of 2024 will be 9.51 billion yuan. According to the company's announcement, Shandong Hongqiao, a subsidiary of Chinahongqiao, achieved a net profit of 4.34 billion yuan in the first quarter, and is expected to achieve a net profit of 5.17 billion yuan in the second quarter.

Zhongtai Securities' main points are as follows:

The prices of electrolytic aluminum and alumina continue to rise, and the profit per tonne is expanding.

Since 2024, the prices of the two major products, electrolytic aluminum and alumina, have both risen significantly. In 24Q1 and Q2, the average prices of electrolytic aluminum were 19,047 yuan/ton and 20,584 yuan/ton, respectively; the average prices of alumina were 3325 yuan/ton and 3564 yuan/ton, respectively. At the same time, the purchase prices of major raw materials such as coal and anode carbon blocks have declined. In 24Q1 and Q2, the average prices of Shanxi thermal coal mines were 749 yuan/ton and 700 yuan/ton, respectively; the average prices of pre-baked anodes were 4534 yuan/ton and 4597 yuan/ton (the average price in 23Q4 was 4858 yuan/ton). According to the bank's calculation, the net profit per ton of electrolytic aluminum in 24Q1 and Q2 was 1658 yuan/ton and 2502 yuan/ton, respectively; the net profit per ton of alumina in 24Q1 and Q2 was 356 yuan/ton and 558 yuan/ton, respectively. The profits of the company's two main businesses have both significantly expanded.

In the second quarter, Yunnan resumed production, and production continued to be released.

According to Baichuan, some of the company's capacity in Yunnan has resumed production since March 2024, and has been fully resumed in April. Currently, Yunnan has a production capacity of 1.5 million tons, and it is expected that the release of 100,000 tons of capacity in Yunnan will increase the company's output of electrolytic aluminum by 10-20,000 tons in the second quarter compared to the first quarter.

The market has underestimated the two ends of the aluminum industry chain, and the overall prosperity of the industry chain may rise in a spiral pattern.

1) Aluminum: On the supply side, the contradiction in China's domestic aluminum electrolysis is not only about hydropower, but also depends on wind and solar new energy storage. The power supply is naturally "fragile"; furthermore, during the energy system transformation and new energy construction process, the capital expenditure and raw material competition of traditional energy will be severely compressed, which will ultimately bring about a shortage of another production material for aluminum electrolysis—petroleum coke, and the impact on global aluminum electrolysis production in the medium and long term will be even more profound. On the demand side, under the background of maintaining trade-in housing and counter-cyclical adjustments in China, traditional demand will slow down. The demand for new energy (new energy vehicles, photovoltaics, etc.) will drive the trend of aluminum electrolysis demand to rise, and the overall impact is becoming apparent. The demand for green metal aluminum electrolysis should not be overly pessimistic, and the average annual demand growth rate for aluminum electrolysis may be around 2-3%. The structure of aluminum electrolysis itself is undergoing profound changes, and its "class resource" attribute will gradually emerge. 2) Alumina: Although the oversupply pattern in the alumina industry continues, alumina production may be constrained by raw material bottlenecks. China's bauxite supply is relatively fragile, with an import dependency rate of more than 70%, and a high concentration, with 70% coming from Guinea.

2) Alumina: Although the oversupply pattern continues, alumina production may be restricted by bottlenecks on the raw material side. China's supply of bauxite is relatively fragile, with an import dependence of more than 70% and a high concentration, where 70% comes from Guinea. Once a sudden event that affects the supply of raw materials occurs in Guinea (such as the explosion of an oil tank at the end of 23), the disturbance to the supply will be very obvious, thereby affecting alumina production and price fluctuations. More importantly, alumina prices usually rise with the price of electrolytic aluminum. Historically, the price ratio between alumina and electrolytic aluminum has been relatively stable, ranging from 12% to 24%, and most of the time it is between 15% and 20%. During the rising period of electrolytic aluminum, the price of alumina usually follows. In addition, although the alumina industry is always in oversupply, because its opening and closing are relatively flexible, when the profitability of the industry is temporarily low, the supply can be controlled by shutting down production capacity at any time, so the loss at the bottom of the industry is usually relatively small and the duration is short. The market may underestimate the degree to which alumina benefits from the rising cycle of electrolytic aluminum prices.