Huayuan Securities: CHINAHONGQIAO (01378) combines the advantages of integration and high dividend yield. It is initiated with a "buy" rating for the first time.

Huayuan Securities released a research report, covering CHINAHONGQIAO for the first time, and gave it a "buy" rating. Being a global leader in electrolytic aluminum, the company has achieved integrated industrial layout, with significant cost advantages in alumina and electricity. Additionally, the company has a high dividend payout ratio and is valued lower than its peers. It is expected to achieve a net profit attributable to shareholders of 34.8/37.0/39.3 billion yuan in 2026-2028, corresponding to P/E ratios of 9.0/8.5/8.0X. The bank selected Aluminum Corporation Of China, Yunnan Aluminium, Tianshan Aluminum Group, and Shandong Nanshan Aluminium, four listed electrolytic aluminum companies, with average P/E ratios of 11.0/9.7/8.2X in 2026-2028. Key points of Huayuan Securities are as follows: As a global leader in the aluminum industry, strong profitability, ample cash flow, and high dividend returns to shareholders. CHINAHONGQIAO Group is a large enterprise integrating the entire aluminum industry chain, including thermal power, mining, alumina, liquid aluminum alloy, aluminum ingots, aluminum alloy casting and rolling products, aluminum busbars, high-precision aluminum strips, foils, and new materials. Its alumina and electrolytic aluminum production capacities are mainly concentrated in Shandong and Yunnan provinces, with over ten production bases. As of 2025, the company has a total alumina production capacity of 21 million tons and a compliant electrolytic aluminum production capacity of 6.46 million tons, with aluminum processing capacity of 970 thousand tons. The company's net profit attributable to shareholders increased from 6.85 billion yuan in 2016 to 22.64 billion yuan in 2025, with a compounded annual growth rate of 14%, and a net profit margin rising from 11.2% to 13.9%, showing strong and stable profitability. The company values shareholder returns highly, implementing dividends every year since its listing in 2011, with a cumulative net profit of 141.1 billion yuan and cash dividends of 50.43 billion yuan from 2011 to 2025, with an average dividend payout ratio of 36%, reaching as high as 63% in 2025. The company has achieved an integrated layout of the entire aluminum industry chain, with significant cost advantages and strong profitability. The company has established a complete aluminum industry chain layout covering bauxite and energy, alumina, electrolytic aluminum, and aluminum processing, becoming a global leader in the aluminum industry. 1) Bauxite: As a member of the Win Alliance, the company has invested in bauxite mines in Guinea, with the Boke bauxite mine within the Win Alliance exporting over 70 million wet metric tons in 2025. Weili International predicts that the shipment volume will exceed 90 million tons in 2026, ensuring sufficient bauxite raw materials. 2) Alumina: The company has a high self-sufficiency rate of alumina, with the current alumina production capacity of 21 million tons, theoretically reaching a self-sufficiency rate of 171%. With stable supply of bauxite raw materials and energy, the company's alumina costs remain relatively stable, with the cost per ton in 2025 at 2,256 yuan, an increase of 2% year-on-year. 3) Electrolytic Aluminum: The company has an electrolytic aluminum production capacity of 6.46 million tons, with some capacity shifting from Shandong to Yunnan, with an estimated electrolytic aluminum production capacity of 3.21/3.25 million tons in Shandong and Yunnan respectively by 2028. With the cost advantages of integration, the company's electrolytic aluminum costs are stable and declining. The cost per ton of electrolytic aluminum has decreased from 15,200 yuan per ton in 2022 to 13,000 yuan per ton in 2025, with a gross profit margin increasing from 13% to 28%, greatly enhancing profitability. Benefitting from the rise in aluminum prices, the gross profit per ton of electrolytic aluminum continues to grow, reaching 5,183 yuan per ton in 2025, an increase of 119% compared to 2,370 yuan per ton in 2022. 4) Aluminum Deep Processing: With an aluminum processing capacity of 970,000 tons, the company focuses on developing lightweight products. With a total capacity of 55,000 tons from the completion of Yunnan Zhialuminum and Yunnan Hongyan in 26 years, the total aluminum processing capacity is expected to reach 1.52 million tons. As a member of the Win Alliance, the company is involved in the development of the Simandou iron ore project, which is expected to contribute to new profit growth opportunities. The Simandou iron ore project is located in the southeast of Guinea, being one of the world's largest and highest-quality iron ore projects with estimated reserves of 4.4 billion tons. The project is jointly developed by the government of Guinea, Baowu, Rio Tinto, Chinalco Iron Ore, and the Simandou Alliance. The Simandou mining area is divided into two sections - North and South. As of now, the North sections 1 and 2 are held by WCS (a joint venture of Baowu and the Win Alliance) with an 85% stake, while the South sections 3 and 4 are controlled by Simfer Jersey (a joint venture of Rio Tinto and Chinalco Iron Ore) with an 85% stake. The project started production in November 2025, with a full production capacity of 120 million tons per year. As a member of the Win Alliance, the company is expected to benefit from the profits of the Simandou iron ore project.