Swhy issued a research report stating, for the first time covering chinahongqiao (01378), giving a 'shareholding' rating, expecting net income of 19/20.2/21.4 billion yuan in 2024/2025/2026. Considering that the company is an integrated aluminum production enterprise with significant advantages, leading layout of overseas bauxite resources, high alumina and electrical utilities self-sufficiency, amid the increasing reliance of domestic bauxite on external sources, combined with low running thermal coal prices, the company's cost advantages are prominent. With the improvement in the prosperity of the aluminum smelting industry, performance is expected to continue to grow.

Shenwan Hongyuan's main points are as follows:

A global leading manufacturer of aluminum products, with a well-integrated industry chain layout.

1) Capacity: The company is mainly engaged in the production and sales of alumina, liquid aluminum alloys, aluminum ingots, and deep-processed aluminum products. The scale of electrolytic aluminum is globally leading, with an annual production capacity of 50 million tons of bauxite in Guinea, 19.5 million tons of alumina (including 17.5 million tons domestically and 2 million tons in Indonesia), 6.46 million tons of electrolytic aluminum, and 1.17 million tons of deep-processed aluminum. In addition, the company has a self-owned power plant in Shandong, with an overall electrical utilities self-sufficiency rate of 52%. 2) Performance: In H1 2024, the company achieved a revenue of 73.59 billion yuan, up 12.0% year-on-year, and achieved a net profit attributable to the parent of 9.16 billion yuan, up 272.7% year-on-year. Mainly driven by the rise in aluminum prices, the decrease in raw material costs, profits from both ends of electrolytic aluminum, and a synchronous increase in the volume and price of alumina products.

Domestic bauxite supply continues to tighten, highlighting the resource attributes at the mining end.

Domestic tightening of safety and environmental protection policies, difficulty in resuming production of domestic bauxite, increasing dependence on imports, frequent disturbances in overseas supplies, highlighting the resource attributes at the mining end, and the profit in the electrolytic aluminum industry shifting to the upstream links. The company has a forward-looking layout of overseas resources, with an annual production capacity of 50 million tons at the Guinea bauxite project, ensuring stable raw material supply, poised to benefit fully from the rising trend of bauxite prices.

The electrolytic aluminum production capacity is approaching the ceiling, under the new supply and demand structure, aluminum prices are more likely to rise than fall.

On the supply side, domestic electrolytic aluminum production capacity is approaching the ceiling, slow release of overseas increment, limitations on recycled aluminum due to scrap aluminum supply, limited future supply increments; on the demand side, new energy autos and the electrical utilities sector provide demand increments, offsetting the drag from real estate demand, the long-term supply-demand situation of electrolytic aluminum is favorable, and the industry's prosperity is expected to continue to rise. The company's electrolytic aluminum production capacity is 6.46 million tons, with prominent cost advantages, the profit elasticity is expected to be fully realized.

The dividend distribution ratio has been maintained at a high level for a long period of time.

Since its listing in 2011, the company has implemented a dividend plan every year. As of 2023, the total dividends amounted to 38.17 billion yuan, with an average dividend ratio of 47.2% over the past 5 years. On August 16, 2024, the company announced the distribution of an interim dividend of 0.59 Hong Kong dollars per share, with an annualized dividend yield of 8.7% based on the closing price on October 7. The company's dividend distribution ratio ranks at the forefront of the industry. With stable performance growth, its investment value is highlighted.