Citigroup: Aluminum Corporation Of China's stock has been oversold in the short term, reiterating a "buy" rating on CHINAHONGQIAO (01378) with a target price of HK$48.

Citigroup released a research report stating that due to investors' concerns about weakening demand in the background of rising energy prices, as well as investors shifting their fund allocations from the commodities sector to AI-related technology sectors, the stock prices of CHINAHONGQIAO (01378) and Aluminum Corporation Of China (02600) have both significantly underperformed the trend of aluminum prices. At the same time, according to recent communications with investors, Citigroup has identified some new concerns in the market, including the accelerated construction of projects in Indonesia, as well as concerns about China's aluminum electrolytic production capacity exceeding its limit. Regarding market concerns, Citigroup stated that concerns about China's aluminum electrolytic production capacity being exceeded stem from some companies engaging in overproduction due to high profitability levels. Although China's effective production capacity limit has been increased from 45.5 million tons to 48 million tons, the overall production capacity limit in China will not change. According to the bank's understanding, this behavior is not widespread in China, as most large smelters avoid exceeding approved production capacity for production. The overproduction behavior of some smelters is essentially opportunistic and unsustainable in the long run. Regarding the accelerated construction of projects in Indonesia, Citigroup pointed out that the accelerated project in Indonesia is expected to bring in an additional 2.9 million tons of aluminum production between 2026 and 2027, which is likely based on the assumption that all projects will achieve full production as planned by the project owners. When making supply forecasts, directly calculating based on project reserves often leads to an overestimation of supply expectations. Citigroup noted that in the current market environment with weak investor sentiment, these concerns provide reasons for investors to continue shifting their investments from aluminum stocks to AI-related technology sectors. However, Citigroup believes that these concerns about supply increases have been overblown. The bank expects aluminum prices and industry profit margins to remain high for a longer period, and strong free cash flow will continue to support dividends and stock buybacks. The bank views the current weakness in stock prices as a buying opportunity and maintains a "buy" rating for CHINAHONGQIAO and Aluminum Corporation Of China. Citigroup's target price for CHINAHONGQIAO is HK$48. This target price is based on a 2026 expected price-to-earnings ratio (PE) of 13.0 times, consistent with the average level in the Chinese industry. This target price corresponds to a 2026 expected price-to-book ratio (PB) of 2.7 times, and a 2026 expected price-to-earnings ratio (PE) of 12.9 times. Citigroup's target price for Aluminum Corporation Of China is HK$17.08. This target price is based on a 2026 expected price-to-book ratio (PB) of 2.83 times, equivalent to 2.25 standard deviations above the historical average price-to-book ratio of 1.27 times to reflect the benefit of higher aluminum prices and a significantly higher return on equity (ROE) expected for the years 2026 to 2027 compared to historical average levels. Additionally, Citigroup's target price for Aluminum Corporation Of China's A-shares (601600) is RMB 7.24. This target price is based on a 2026 expected price-to-book ratio (PB) of 3.28 times, equivalent to 2 standard deviations above the historical average price-to-book ratio of 1.86 times.