Target price raised by 44% to 39 Hong Kong dollars! Zhongyuan International is optimistic about CHINAHONGQIAO (01378) due to supply and demand improvements driving reassessment.

News, CICC International released a research report, pointing out that with the continuous optimization of the supply and demand structure, strong terminal demand, and stable cost end support, CHINAHONGQIAO (01378) is expected to see further value reevaluation. The bank maintains a "buy" rating for CHINAHONGQIAO and significantly raises the target price from 27 Hong Kong dollars to 39 Hong Kong dollars. Supply-side constraints are strengthening, global supply growth is limited China is the core of global aluminum supply, accounting for about 60% of global production. Since the implementation of supply-side reforms in 2017, domestic aluminum production capacity has been locked at around 45 million tons, and supply-side control continues to tighten. In September 2025, the industry's capacity utilization rate peaked at 99% in a decade, and in October it remained at a high level of 98.6%. On the overseas market front, new capacity in areas such as Indonesia is progressing slower than expected, and CICC International expects global aluminum supply growth to remain limited in the next 3-6 months. Resilience of terminal demand highlighted, supply and demand pattern shifting towards scarcity Demand has been strong, with core applications such as electric vehicles, power equipment, and electronics maintaining resilience, providing solid support for aluminum prices. CICC International predicts that in the 2025/26 fiscal year, global aluminum demand growth rates will reach 2.1% and 1.7% respectively, while supply growth rates during the same period will only be 1.7% and 1.3%. This means that the global aluminum market will shift from a surplus situation in the 2025 fiscal year to a shortage situation in the 2026 fiscal year, further supporting the industry's prosperity. Profit expectations raised, valuation still has room for upside Based on optimistic outlook for aluminum prices, CICC International has raised CHINAHONGQIAO's profit forecasts for 2025-2027 by 4%-5%. The bank's calculations show that a 1% increase in aluminum prices can drive a 3% increase in company profits. A 1% decrease in coal prices can also drive a 0.4% increase in profits. In addition, the company's strong free cash flow is expected to support a dividend payout ratio of 60%, and it is expected to achieve a near net cash assets to liabilities ratio by the end of 2026. The current stock price corresponds to a dividend yield of about 6%, highlighting its investment appeal. In terms of valuation, the company's estimated P/E ratio for 2026 is already around 10 times, and CICC International remains optimistic about its upside potential. The core logic includes two aspects: firstly, the continued improvement in the short-term industry supply and demand pattern will boost market sentiment; secondly, the significant improvement in the company's balance sheet, with the net debt ratio expected to decrease from 24% at the end of 2024 to a near net cash state by the end of 2026. This will be a key driver for reducing valuation risks and supporting further valuation recovery for the company.