Guosen: Maintains a rating of "Outperform" for CHINAHONGQIAO (01378) as Shandong Hongqiao's profits have increased quarter-on-quarter and year-on-year in the third quarter.

Guosen released a research report stating that with the current high prosperity cycle of electrolytic aluminum and the opportunity of capacity transfer, CHINAHONGQIAO (01378) will have a more sustainable development capability in the future, maintaining a "outperform market" rating. The company's full industry chain layout and sufficient ore security have benefited from the tight supply of bauxite and the significant rise in alumina prices. The company's profitability has a great elasticity to both aluminum prices and alumina prices. In the past few years, energy-related raw material prices have fluctuated significantly, but in the future, fluctuations in energy costs are expected to decrease, making the company's profitability more stable. Guosen pointed out that the unaudited balance sheet and income statement of Shandong Hongqiao, a subsidiary of CHINAHONGQIAO, for the third quarter of 2024 are as follows: The operating income of Shandong Hongqiao in the third quarter of 2024 was 38.02 billion yuan (up 13.9% year-on-year and 2.0% quarter-on-quarter), with a net profit of 5.96 billion yuan (up 38.0% year-on-year and 9.4% quarter-on-quarter). According to the announcement, the company's main profit-increasing items at the operational level include: In the third quarter, the price of alumina in Shandong was 3,920 yuan/ton, an increase of 300 yuan/ton compared to the previous quarter. Shandong Hongqiao has an equity alumina production capacity of 16.68 million tons and an equity aluminum production capacity of 5.67 million tons. Calculated with an alumina consumption of 1.92 tons per ton of aluminum, Shandong Hongqiao sells 5.79 million tons of alumina externally annually, which represents 1.45 million tons per quarter, resulting in a simple calculation of a profit increase of 400 million yuan in alumina prices compared to the previous quarter. In the third quarter, the electricity cost in Yunnan decreased by 0.12 yuan/kWh compared to the second quarter, resulting in a profit increase of 400 million yuan due to the drop in power costs. The price of prebaked anodes for raw materials in the third quarter decreased by 250 yuan/ton compared to the previous quarter, resulting in a profit increase of 1.5 billion yuan.