HSBC: Raises target price for CHINAHONGQIAO (01378) from HK$14.5 to HK$16.

HSBC Global Research recently released a research report stating that although there may be some adverse factors in the near term, the aluminum oxide supply bottleneck will gradually be resolved as the peak season ends. The bank remains optimistic about the Chinese aluminum industry in 2025, expecting profit margins to continue to rise. The bank maintains its "buy" ratings for Aluminum Corporation Of China (02600,601600.SH) and CHINAHONGQIAO (01378), with target prices of 6.40 Hong Kong dollars, 10.00 RMB, and 16.00 Hong Kong dollars respectively. The bank believes that integrated aluminum companies (Aluminum Corporation Of China and CHINAHONGQIAO) are promising as profit margins are expected to rise for a long period of time, with upward risks in 2025. The reasons include: 1) anticipated tight supply in the value chain (bauxite, alumina, aluminum) in 2025, where any disruption can easily lead to shortages and price increases; 2) demand closely related to energy transition, which will continue to be a focus of current economic stimulus plans; 3) attractive valuation and dividend yield. The bank suggests that the aluminum oxide supply bottleneck should improve in early 2025, but any new disruptions could easily lead to shortages again. The bank points out that after the suspension of exports in Guinea, aluminum oxide prices reached historic highs, but they are expected to stabilize and potentially decrease in early 2025. Reasons for this include: 1) increased supply of bauxite after the end of the rainy season in Guinea (November); 2) more alumina refineries coming online in Asia (especially in Indonesia and India); 3) reduced aluminum production in Yunnan during the dry season leading to a decrease in aluminum oxide demand. Therefore, the bank predicts that the global aluminum oxide supply bottleneck will ease in early 2025, and supply will become more abundant in 2026. However, the bank adds that although the supply issues of bauxite and aluminum oxide are expected to be resolved in 2025, the supply and demand of these materials are just balanced, so the bank believes that aluminum oxide prices will remain high and support aluminum prices. Furthermore, the bank also mentioned that the end of the peak season and the production control of aluminum in Yunnan should not come as a surprise. According to Shanghai Metals Market, many downstream producers have reported a decrease in orders after experiencing strong demand peaks in September and October. The bank also expects that Yunnan's production control this year will not bring many surprises, due to reasons such as: 1) strong hydropower generation so far this year with abundant rainfall; 2) increasing wind energy and CECEP Solar Energy to supplement power supply; 3) weak cement demand and reduced production of polysilicon leading to a decrease in electricity consumption.