Tianshan Aluminum's preliminary H1 2026 performance exceeded expectations, with stronger profit resilience after excluding tax impact

Overview

This report is an earnings review by Morgan Stanley on Tianshan Aluminum. The core conclusion is that the company’s preliminary H1 2026 performance was better than expected after excluding tax effects, mainly benefiting from higher aluminum prices and improved cost control. The Xinjiang tax rate increase was a one-off drag on 2Q26 profit, but if this factor is removed, 2Q26 earnings performance is stronger than analysts had expected. The report also expects that although renewed overseas supply may continue to pressure aluminum prices, aluminum sector supply-demand remains relatively tight in 2026, and together with higher sales from the Xinjiang production base, the company’s 2H26 earnings are expected to remain robust.

Core views

First, 1H26 net profit is expected to double to Rmb4.2bn, with recurring profit up 109% year-on-year to Rmb4.1bn, indicating a clear improvement in core profitability. Second, the Xinjiang tax rate increase to 25% is estimated to affect 2Q26 profit by around Rmb700mn, but this is an important factor that should be excluded when interpreting quarterly performance. Third, overseas supply normalization and additional Indonesian capacity coming online may pressure aluminum prices, but the industry-wide shortage throughout the year should help limit price declines. Fourth, Morgan Stanley assigns an Overweight stock rating and Attractive industry view, with a target price of Rmb23.00, corresponding to about 102% implied upside.

Analysis framework

The report forms its view by combining the company’s preliminary performance, aluminum price trend, cost control, tax-rate changes, overseas supply recovery, and the industry supply-demand gap. For valuation, a residual income model is used, with earnings forecasts discounted to beyond 2037 and then normalized.

Methodology notes

• Valuation methodsresidual income valuation model

  Residual income valuation

  The base-case target price is derived from the residual income valuation model; the report discounts earnings forecasts through 2037 and applies normalization, with key assumptions including 8.6% cost of equity, 1.8% risk-free rate, 7% equity risk premium, 0.97 beta, 15% long-term ROE and 4% stable growth rate.

• rating_systemMorgan Stanley relative rating system

  Relative rating framework

  Morgan Stanley uses relative ratings such as Overweight, Equal-weight, Not-Rated and Underweight. Overweight indicates that expected risk-adjusted total return is above the analyst-average level within the covered industry over the next 12-18 months.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Tianshan Aluminum 002532.SZ

  Core coverage stock

  Strengths

  1H26 earnings beat expectations, improved cost control, benefit from aluminum price recovery, rising sales at Xinjiang base, and large implied upside to target price.

  Weaknesses

  2Q26 was hit by a one-off impact from the Xinjiang tax increase; profitability remains sensitive to aluminum prices and raw material and energy prices.

  Comparison

  Rating is Overweight and industry view is Attractive, with expected better risk-adjusted return than the sector coverage set over the next 12-18 months.

  Risks

  Global aluminum demand slowdown, increases in raw material and energy prices, industry overcapacity, and pressure on aluminum prices from renewed overseas supply.

• Aluminum sector

  Earnings driver and valuation backdrop

  Strengths

  The industry remains in shortage in 2026, helping to limit downside in aluminum prices.

  Weaknesses

  Middle East restart and gradual release of Indonesian new capacity may increase supply pressure.

  Comparison

  Company earnings are highly correlated with industry supply-demand gap, overseas supply pace, and aluminum price movement.

  Risks

  If demand falls short of expectations or supply is released faster than expected, sector price support may weaken.

Key data

• Expected 1H26 net profitRmb4.2bnThe company expects first-half net profit to double.
• 1H26 recurring profitRmb4.1bn, up 109% year-on-yearCore business profitability improved significantly after excluding one-off items.
• 2Q26 tax impactabout Rmb700mnProfit impact from Xinjiang tax rate increase from 15% to 25%.
• 2Q26 net profit excluding tax impactabout Rmb2.6bnHigher than Morgan Stanley’s expectation.
• Stock ratingOverweightThe stock rating disclosed in the report.
• Industry viewAttractiveThe industry view disclosed in the report.
• Target priceRmb23.00Target price listed as 23 in the target-price history section on 4/13/26 and in the cover table.
• CloseRmb11.37Close as of July 3, 2026.
• Implied upside102%Upside relative to target price.

Impact & implications

The report’s investment implication for Tianshan Aluminum is constructive: if aluminum price declines are constrained by industry shortage and the Xinjiang base continues to ramp up output, the company’s 2H26 earnings resilience may further support valuation recovery. The gap between target price and current price is large, indicating Morgan Stanley believes the current stock price has not yet fully reflected 2026 earnings improvement and supply-demand support.

Risks

• Global aluminum demand slowdown.
• Rising raw material and energy prices.
• Industry overcapacity.
• Aluminum price pressure from Middle East restart and Indonesian incremental capacity release.
• Commodity price pullback due to potential U.S. rate-hike discussions.

What to watch

• Whether 2H26 aluminum price trend and industry scarcity continue.
• The pace of Middle East restart and Indonesian incremental capacity release.
• Extent to which Xinjiang production base sales growth is realized.
• Sustained profit impact after Xinjiang tax rate increase.
• Changes in raw material and energy costs.