HSBC: CHINAHONGQIAO(01378) long-term prospects are optimistic, target price raised to 20.6 Hong Kong dollars.

HSBC Bank has released a research report, raising the target price of CHINAHONGQIAO (01378) from HK$18.5 to HK$20.6, maintaining a "buy" rating. HSBC pointed out that due to the rise in aluminum prices and cost reduction, the profit performance in the first half of 2025 was strong, which greatly offset the losses in the alumina business; in the second half of the year, profits may temporarily decline due to slightly weakened demand and decreased contribution from the alumina business. However, they remain optimistic about the long-term prospects and have raised the target price given its solid fundamentals. HSBC stated that the aluminum sector had a strong start in the first half of 2025, benefiting from strong demand, favorable pricing, and cost dynamics. Aluminum prices were up by about 3% year-on-year, while unit costs decreased due to the decline in coal prices (down by about 20% so far this year). Aluminum inventory levels reached their lowest point since 2022, despite high utilization rates for primary aluminum smelters. CHINAHONGQIAO announced a substantial increase in profits, benefiting from price increases and higher profit margins. For the second half of this year, HSBC said that while there are signs of slowing demand, the fundamentals of aluminum still have overall support: downstream industries such as CECEP Solar Energy installations and durable consumer goods show signs of slowing, which may put pressure on aluminum demand and prices in the second half of the year. Despite achieving record high aluminum prices in the fourth quarter of 2024, strong profit contributions, profits in the second half of this year may see a year-on-year and quarter-on-quarter decline. Nevertheless, HSBC believes that the industry still has multiple positive factors: the 45 million ton production limit remains an important supply control measure, continued grid investments, electric car sales, and export recovery all provide support for demand. Subsidies for replacing old with new are still effective, although their incremental impact may begin to weaken. HSBC expects aluminum prices to be supported by low inventory. However, further increases in prices and profits may require the combined effect of strong demand and sustained declines in energy costs. Broader policies against "internal competition" may strengthen production limits for aluminum, helping to maintain market discipline.