The core takeaway from this note is the strengthening of Aluminum Corp. of China's low power costs and capacity constraints at the Baotou plant

Overview

This report is a Morgan Stanley company research meeting note on Aluminum Corp. of China Ltd. (2600.HK), based on a Baotou plant visit and a management meeting. The report focuses on the Baotou plant's aluminum capacity, power mix, power costs, hard industry capacity constraints, overproduction regulation, and changes in overseas investment regulation, and assigns an Overweight rating, an Attractive industry view, and a HK$11.20 target price.

Core views

The core view is that Aluminum Corp. of China's Baotou plant has a strong power cost advantage, especially with renewable power tariffs significantly below average power costs; management still views China's 45mnt primary aluminum capacity ceiling as a hard constraint, and new regulatory documents may enhance the traceability of and restrictions on overproduction; new overseas investment rules will apply more granular reviews to investment entities, assets, locations, financing structures, and technology exports, potentially affecting overseas expansion in the aluminum industry.

Analysis framework

The report combines on-site plant research, management discussions, company operating data, policy document interpretation, and Morgan Stanley ModelWare estimates to assess Aluminum Corp. of China's cost structure, supply constraints, valuation assumptions, and potential risks.

Methodology notes

• Valuation methodsResidual income model

  base case residual income model

  The H-share target price uses a base-case residual income model, with key assumptions including a 12.1% cost of equity, a 2% terminal growth rate, and an 11.0% long-term ROE.

• Valuation methodsA-share target price conversion method

  A-share price target derivation

  The A-share target price is derived by applying a 10% premium to the H-share target price and adjusting by the estimated CNYHKD exchange rate of 1.14.

• Research dataMorgan Stanley ModelWare

  ModelWare framework

  Unless otherwise stated, the metrics in the report are based on the Morgan Stanley ModelWare framework; consensus data is provided by Refinitiv Estimates.

Asset mapping & comparison

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

• 2600.HK

  Research target H-share

  Strengths

  Overweight rating, Attractive industry view, HK$11.20 target price, and 30% upside; the Baotou plant has low power costs and a relatively high captive power ratio.

  Weaknesses

  Earnings are sensitive to aluminum prices, demand, and the strength of industry supply-side enforcement; tighter overseas investment reviews may affect expansion.

  Comparison

  The A-share target price for 601600.SS is derived from the H-share target price with a 10% premium and adjusted using a CNYHKD exchange rate of 1.14.

  Risks

  Weaker-than-expected demand, faster-than-expected production restarts, and quicker ramp-up of new replacement capacity.

• 601600.SS

  A-share mapping of the same company

  Strengths

  Shares the same Aluminum Corp. of China fundamentals and industry supply-constraint logic as the H-share.

  Weaknesses

  The A-share target price depends on the H-share target price, premium assumptions, and exchange rate assumptions.

  Comparison

  The A-share target pricing method applies a 10% premium relative to the H-share target price.

  Risks

  Changes in exchange rate assumptions, A/H premium changes, and shifts in industry supply and demand.

Key data

• Baotou plant aluminum capacity1.46mntThe report states that the Baotou plant has 1.46mnt of aluminum capacity.
• Captive power ratio62.5%62.5% of the Baotou plant's power is captive power.
• Renewable and coal power mixsolar 200MW、wind 1900MW、coal 1720MW、4-hour ESSThe captive power mix includes solar, wind, coal power, and 4-hour energy storage.
• Average power costBelow Rmb0.40/kWhThe report discloses that the Baotou plant's average power cost is below Rmb0.40/kWh.
• Renewable power costRmb0.17/kWhRenewable power cost is significantly below the average power cost.
• National aluminum capacity cap45mntManagement believes 45mnt remains a hard capacity ceiling.
• H-share target priceHK$11.20Morgan Stanley assigns 2600.HK a target price of HK$11.20.
• Closing priceHK$8.63The reference is the closing price on July 23, 2026.
• Upside30%The report table shows 30% upside implied by the target price.
• 2026e EPSRmb1.27The table shows 12/26e EPS of Rmb1.27.
• 2026e EBITDARmb62.4bnThe table shows 12/26e EBITDA of Rmb62.4bn.
• 2026e ROE29.0%The table shows 12/26e ROE of 29.0%.

Impact & implications

If hard capacity constraints and retrospective regulation of overproduction are effectively enforced, industry supply expansion may be further limited, benefiting aluminum prices and the earnings resilience of leading players; at the same time, the Baotou plant's low power costs and higher captive power ratio should enhance Aluminum Corp. of China's cost competitiveness. However, tighter overseas investment reviews may slow the industry's overseas capacity buildout, while demand, production restarts, and the pace of replacement capacity commissioning remain important variables affecting share price and earnings expectations.

Risks

• Upside risks include stronger-than-expected demand.
• Upside risks include larger-than-expected supply cuts.
• Downside risks include faster-than-expected production restarts.
• Downside risks include quicker startup of new replacement capacity.
• Downside risks include weaker-than-expected demand.
• More granular overseas investment reviews may affect overseas investment in the aluminum industry.
• Morgan Stanley discloses that it may have business relationships with covered companies, and investors should use this research as only one factor in investment decisions.

What to watch

• The strength of enforcement after NDRC Document No. 45 takes effect on August 1.
• Whether the hard 45mnt primary aluminum capacity ceiling continues to be strictly enforced.
• Whether retrospective checks on power consumption, approved capacity versus actual output, potline parameters, environmental compliance, green power sources, and maintenance records are actually implemented.
• The impact of Document No. 837 on the approval pace of overseas investment projects in the aluminum industry.
• Whether Aluminum Corp. of China's captive power and renewable power cost advantages at the Baotou plant can be sustained.
• Aluminum demand, the pace of production restarts, and the progress of replacement capacity startups.