Maintain "buy" rating on CHINAHONGQIAO (01378) - Share buyback demonstrates development confidence.

Guolian's released research report maintains a "buy" rating for CHINAHONGQIAO (01378), with an estimated net profit attributable to shareholders of 223.17/260.42/270.76 billion yuan for the years 2024-2026. According to the share buyback authorization granted at the annual shareholders' meeting held by the company's shareholders on May 14, 2024, from January 15, 2025 to January 17, 2025, the company repurchased 7.5965 million shares, accounting for 0.08% of the company's total share capital, with a highest transaction price of HK$12 per share and a lowest transaction price of HK$11.26 per share, totaling HK$87.5817 million (excluding commissions and other expenses). The company will subsequently cancel the repurchased shares, and it is expected that after the cancellation of all repurchased shares, the company's total share capital will be 9.468 billion shares. Key points from Guolian are as follows: Company's value may be undervalued, buyback shows confidence in development The share buyback reflects the board of directors and management team's confidence in the company's long-term strategy and growth, believing that the share buyback is in the overall best interests of the company and its shareholders. On June 14 and June 17, 2024, Hongqiao Holdings purchased 6.8725 million shares and 6.645 million shares of the company at an average price of approximately HK$11.87 and HK$11.76 per share, respectively, accounting for 0.073% and 0.07% of the company's total share capital. The purchase price at which Hongqiao Holdings increased its stake is close to the buyback price announced in this announcement. The board of directors of Hongqiao Holdings believes that the current stock price deviates from the company's value, and does not rule out further buybacks based on market conditions. Electrolytic aluminum is the company's main source of profit, and the impact of falling alumina prices on performance may be limited In the first half of 2024, the company's revenue from electrolytic aluminum/alumina business was 49.31/16.2 billion yuan, accounting for 67.0%/22.0% respectively; the gross profit of electrolytic aluminum/alumina business was 12.14/4.12 billion yuan, accounting for 68.2%/23.1% respectively; electrolytic aluminum is the main source of the company's income and profit. As of January 17, 2025, the alumina 2502 contract futures price was 3747 yuan/ton; according to SMM, on January 17, 2025, the full cost of alumina in Shanxi/Henan using imported ore was 3880/4226 yuan/ton. The bank believes that with cost support, there is limited room for further decline in alumina prices. The supply-demand gap for electrolytic aluminum in 2025 may widen, the upward trend in aluminum prices will be smoother, and the limited decline in alumina prices will contribute to the company's profit growth in 2025. Core assets are planned for domestic listing, with limited dilution of equity stake On January 6, 2025, Shandong Hontron Aluminum Industry Holding announced the planned acquisition of all the shares of Hongtuo Industrial, issuing new shares to existing shareholders of Hongtuo Industrial, including Weiqiao Aluminum Industry, as the consideration for the acquisition. Hongtuo Industry currently owns all electrolytic aluminum, alumina, and some aluminum alloy processing production lines in mainland China. As of the signing date of the proposal, the transaction price of the target assets has not been finally determined. As of December 31, 2024, the unaudited net assets of Hongtuo Industry were 48.616 billion yuan; as of September 30, 2024, the owner's equity of Shandong Hontron Aluminum Industry Holding was 19.78 billion yuan. Therefore, the bank expects that the dilution ratio of the company's equity stake in Hongtuo Industry will be limited after the completion of the transaction. In addition, this transaction is conducive to enhancing the company's level of securitization of assets and market influence; after the completion of the transaction, the company will have both A+H financing platforms, and the company's financing costs are expected to decrease, promoting the long-term development of the company.