CMB International: Aluminum sector has fully digested negative news, valuation is attractive, maintaining a "buy" rating for CHINAHONGQIAO (01378).

Zhaojin International released a research report pointing out that the recent pressure on the aluminum sector is due to the easing of the situation in the Middle East, potential changes in export policies of bauxite in Guinea, and capital rotation, among other factors. However, most market concerns have already been reflected in the stock prices. After a recent pullback, the stock price of CHINAHONGQIAO (01378) has returned to historical low levels, making dividend returns attractive. The stabilizing aluminum prices and potential share buybacks are expected to act as positive catalysts. The report states that CHINAHONGQIAO is currently trading at a forecasted PE ratio of about 5.6 times for 2026, with a dividend yield of about 11%, slightly lower than its historical average PE ratio of 6 times. Zhaojin International believes that this valuation is attractive and maintains a "buy" rating. Its core subsidiary, Shandong Hongqiao Aluminum Industry Holding (002379.SZ), also receives a "buy" rating, with a current price corresponding to a forecasted PE ratio of 8 times for 2026 and a dividend yield of over 9%. Regarding the market's concerns about the recovery of production capacity in the Middle East, Zhaojin International reaffirms its previous view: due to the time-consuming and costly process of emptying electrolytic cells and refining, the resumption of affected production capacity in the Middle East is expected to take 12 to 18 months. Meanwhile, the lack of trust between the US and Iran poses a risk of rekindling conflict in the medium term, which may disrupt regional aluminum supply from time to time. As for potential changes in export policies for bauxite in Guinea, Zhaojin believes that the impact on CHINAHONGQIAO is manageable, as it has already invested in mining and alumina refining in the country. In terms of the outlook for aluminum prices, Zhaojin International maintains a forecast of RMB 23,700 per ton for Shanghai aluminum prices in 2026, an increase of 15% compared to the previous year, with an average price of RMB 23,200 in the second half of the year, up 10% year-on-year. Shanghai aluminum prices have risen by 17% year-on-year to RMB 24,200 per ton since the beginning of the year.