Guolian: Integrated advantages of aluminum industry chain highlighted in CHINAHONGQIAO (01378), maintains "buy" rating.

Guolian released a research report stating that it maintains a "buy" rating for CHINAHONGQIAO (01378), with an estimated net profit attributable to shareholders of 195.9/212.7/225.9 billion yuan for 2024-2026, representing a year-on-year growth of 70.93%/8.58%/6.22%. The company's subsidiary, Shandong Hongqiao, achieved operating income of 110.68 billion yuan in 2024 Q1-Q3, an increase of 12.47% year-on-year; net profit was 15.54 billion yuan, an increase of 141.43% year-on-year. Specifically, in 2024 Q3, operating income was 38.23 billion yuan, up 13.86% year-on-year; net profit was 5.14 billion yuan, up 36.95% year-on-year. Guolian's main points are as follows: Yunnan has ample power supply during the wet season, and electrolytic aluminum production in Q3 is expected to increase year-on-year In 2024, Yunnan has ample power supply. The bank predicts that the company's Q3 electrolytic aluminum production will increase year-on-year. According to the credit rating report for Shandong Hongqiao, by the end of 2023, the first phase of the Yunnan Wenshan electrolytic aluminum project, with a designed capacity of 1.74 million tons/year, had been completed and put into production in 2022; the second phase of the Yunnan Wenshan electrolytic aluminum project, with a capacity of 95,000 tons/year, has been basically completed, and some capacity will be put into operation in the third quarter of 2023. If the project has sufficient power supply, the remaining capacity is expected to be put into operation successively in the second half of 2024. The Yunnan Honghe project, with a planned capacity of 1.93 million tons/year, started construction in August 2023, and the first phase with a capacity of about 964,300 tons/year is planned to be completed in 2024. The remaining capacity will be planned based on the power supply situation. The decline in coal and prebaked anode prices is beneficial for the company's profit growth In 2024 Q1-Q3, the average price of electrolytic aluminum increased by 5.9% year-on-year; in 2024 Q3, it increased by 3.9%. In terms of cost, the average prices of prebaked anodes and thermal coal in 2024 Q1-Q3 decreased by 22.9% and 10.6% respectively year-on-year, with the average prices in 2024 Q3 decreasing by 11.9% and 2.0% year-on-year respectively. As the company needs to purchase coal and anodes for electrolytic aluminum production, the decline in raw material prices is beneficial for the company's profit growth. Sharp rise in alumina prices leads to increased profits in alumina sector Since 2024, due to factors such as tight supply of upstream bauxite and continuous disturbances in alumina plant maintenance, the supply of alumina has been continuously tightening. The catalyst alumina price has risen sharply, leading to a significant increase in profits in the alumina sector. According to SMM, the theoretical profit of alumina in 2024 Q3 is about 1069 yuan/ton, an increase of 886 yuan/ton year-on-year and 188 yuan/ton month-on-month. The company continues to build an integrated industrial chain structure upstream and downstream, actively integrates overseas bauxite resources, continuously improves the upstream alumina business, and as of the first half of 2024, the company's total annual alumina production capacity is 19.5 million tons. While ensuring the stability of its own costs, the company further increases profits by selling alumina externally.