Citi: Aluminum prices are gaining momentum, first choice is CHINAHONGQIAO (01378)

DBS released a research report, maintaining a "buy" rating on CHINAHONGQIAO (01378) with a target price of 13.9 Hong Kong dollars. DBS' main points are as follows: Due to demand growth surpassing supply, aluminum prices are showing strong momentum. Aluminum prices are expected to rise by 7.8% in 2025, as the demand growth rate for aluminum is 2.6%, while the supply growth rate is 2.0%. Tight aluminum ore supply will provide support for the rise in aluminum prices. With the development of emerging fields such as electric vehicles, CECEP Solar Energy battery panels, Siasun Robot & Automation, and 5G applications, aluminum demand is expected to steadily increase. Additionally, China's aluminum production capacity is close to full capacity operation, with limited new supply, providing strong support for aluminum prices. With the decline in alumina prices, the profitability of aluminum has improved. DBS believes that the irrational price increase in alumina prices in the fourth quarter of 2024 will not sustain, and expects alumina prices to gradually fall between 2025-2026 as Asian alumina production capacity increases and Australian alumina plants resume operations, easing supply shortages. With the decline in alumina prices and the resilience of aluminum prices in 2025, the profitability of aluminum will increase. DBS lists CHINAHONGQIAO as a top pick stock, reasoning that the company has steady growth, higher profitability compared to peers, and an attractive dividend yield. DBS believes that with the support of falling alumina prices and high aluminum alloy product prices, the profitability of its aluminum business will strengthen. DBS predicts that CHINAHONGQIAO's revenue compound annual growth rate will be 6% and profit compound annual growth rate will be 23% from 2023 to 2026.