Bank of America: Fourth quarter earnings expected to be supported, maintaining "buy" rating for CHINAHONGQIAO (01378) with target price raised to 35 Hong Kong dollars.

Bank of America released a performance review of the subsidiary Shandong Hongqiao of CHINAHONGQIAO (01378) and maintained a "buy" rating on the stock, with a target price raised from HK$26.00 to HK$35.00. CHINAHONGQIAO announced that in the first three quarters of 2025, its subsidiary Shandong Hongqiao achieved total operating revenue of RMB 116.926 billion, an increase of 6.23% year-on-year; net profit was RMB 19.371 billion, an increase of 23.13% year-on-year. Net profit in the third quarter was RMB 6.9 billion, an increase of 18% year-on-year and 14% quarter-on-quarter, roughly in line with expectations; the gross profit margin in the third quarter increased by 3 percentage points to 26% quarter-on-quarter. Bank of America believes that profit growth mainly comes from two aspects: 1) expanding profit margins - according to the bank's industry tracking data, in the third quarter, the profit of the aluminum industry increased by 900 yuan/ton quarter-on-quarter, and the profit of alumina increased by 200 yuan/ton quarter-on-quarter; 2) contribution from the Wenshan project - the company acquired the remaining 25% equity of the Yunnan Wenshan project at the end of the second quarter, and the project began to contribute to profits from the third quarter. Bank of America stated that benefiting from low inventory, stable upstream supply, and seasonal demand support from the power grid, it is expected that the Chinese aluminum industry will continue to show resilience in the fourth quarter, with aluminum prices slightly strengthening. Currently, the spot price of aluminum in China has risen to over RMB 21,000 per ton, while the price of alumina is maintained in the range of RMB 2,800-2,900 per ton, and the aluminum profit margin has expanded to over RMB 5,000 per ton, supporting profitability in the fourth quarter. According to industry tracking data, the spot aluminum profit margin is further expected to increase by RMB 600 per ton compared to the third quarter. Based on the latest market aluminum price adjustments, Bank of America raised its aluminum price expectations for 2025 to RMB 20,600 per ton (+100 yuan/ton); and adjusted its 2026 and long-term forecasts to RMB 21,000 per ton. Based on this, the bank raised its profit forecasts for CHINAHONGQIAO for 2025-2027 by 5% to 23%, forecasting a net profit of RMB 26 billion in 2025 (up +17% year-on-year) and RMB 30 billion in 2026 (up +15% year-on-year). Bank of America added that reasons for maintaining a "buy" rating on CHINAHONGQIAO include: 1) maintaining a constructive view on aluminum prices; 2) significant dividend yield (6%-7% assuming a payout ratio of 63%); 3) the expected commencement of the Ximangdu project by the end of 2025, which is expected to contribute around 3% of the company's profits in 2026 and has long-term potential to increase to 9%; 4) ongoing share buybacks to support the share price. The bank stated that the current target price corresponds to a forecasted P/E ratio of 10 times for 2026, which is still attractive compared to Chinese copper companies (12-16 times) and gold companies (16-17 times).