Guotai Haitong: The aluminum market will remain tight in 2026, adjusting the target price of CHINAHONGQIAO (01378) to 43.2 Hong Kong dollars.

Guotai Haitong released a research report, reiterating its "buy" rating on CHINAHONGQIAO (01378) and raising the target price to 43.2 Hong Kong dollars. Guotai Haitong pointed out that the aluminum market supply will remain tight in 2026, leading to an upward revision of earnings expectations. Guotai Haitong raised its earnings per share expectations for CHINAHONGQIAO in 2026 and 2027 to RMB 3.603 and RMB 3.713, respectively. Guotai Haitong expects aluminum prices to continue to rise in 2026; given the current tight supply and demand situation for aluminum, prices are expected to remain in an upward cycle in 2026. Since the beginning of 2026, aluminum prices have been on the rise, reaching RMB 24,000/ton at one point, before slightly falling to around RMB 23,500/ton. Overall, Guotai Haitong expects the aluminum market supply to remain tight in 2026, providing strong support for aluminum prices. Guotai Haitong also noted that from the supply side: 1) domestic aluminum production capacity has approached regulatory limits. By the end of 2025, China's operating aluminum capacity was 44.59 million tons, close to the upper limit of 45 million tons. 2) Overseas supply also faces significant disruptions. For example, Mozal, Africa's second largest aluminum smelter, plans to close in March 2026 due to rising electricity costs. In addition, electricity shortages caused by demand for artificial intelligence computing are expected to impact the aluminum industry, posing long-term risks for overseas capacity closures. From the demand side: 1) The trend of aluminum replacing copper is accelerating. The copper-aluminum price ratio has reached 4.2 times, far higher than the historical reasonable level of 3.5 times, which will further drive the application of aluminum substitution technology and production lines. 2) The demand from the new energy industry continues to grow, with increasing consumption of aluminum in new energy vehicles and energy storage devices. Guotai Haitong also stated that CHINAHONGQIAO will implement a high dividend strategy, benefiting from reduced future capital expenditures. By the end of 2025, the company had transferred 2.17 million tons of capacity to Yunnan, with 830,000 tons remaining in its 3 million ton transfer plan. Guotai Haitong believes that CHINAHONGQIAO will gradually implement the transfer plan from 2026 in accordance with policy requirements and market conditions. Therefore, capital expenditures are expected to decrease from previous highs. Combining the improvement in profitability and the reduction in capital expenditure requirements, Guotai Haitong expects the company's ability to pay dividends in the future to strengthen. In 2024, the company's dividend payout ratio reached a high of 64%. Therefore, Guotai Haitong believes that the company is still an attractive high dividend stock in the Hong Kong stock market.