Solid earnings reaffirm China Hongqiao's attractive valuation

Overview

This report is Jefferies' earnings review of China Hongqiao (01378.HK). The company issued a 1H26 profit alert, expecting NPAT to increase approximately 39% year on year to RMB17.2bn, implying unit net profit of approximately RMB6k/t. Jefferies believes the result is within its RMB17-18bn forecast range, mainly benefiting from stronger aluminum prices and the expected absence of fair value losses related to convertible bonds.

Core views

Jefferies' core view is that China Hongqiao's earnings are solid and its valuation is highly attractive. The stock had previously undergone a significant valuation de-rating due to investor concerns over capacity restarts, accelerating overseas expansion, and pressure on aluminum prices. However, the report believes that although easing tensions in the Middle East may weigh on aluminum price sentiment in the short term, production recovery will take time, and the aluminum market will remain in tight balance over the next 6-12 months.

Analysis framework

The report compares the profit alert with the institution's forecast range and assesses investment appeal based on aluminum prices, unit earnings, valuation multiples, dividend yield, and industry supply-demand balance. The valuation uses a 2026E EPS and target PE approach, with aluminum and alumina price assumptions serving as base-case inputs.

Methodology notes

• Valuation methodsP/E valuation method

  Target price based on 2026E EPS and target PE

  Jefferies' target price is based on 2026E EPS of RMB3.5 and a target PE of 11x; the base case assumes an aluminum price of RMB23.2k/t and an alumina price of RMB2.7k/t.

• FundamentalsProfit alert comparison

  Comparing the company's profit alert with the institution's forecast range

  The company expects 1H26 NPAT of RMB17.2bn, within Jefferies' RMB17-18bn forecast range; therefore, the report considers the earnings performance solid.

• Industry supply and demandAssessment of tight balance in the aluminum market

  Assessing aluminum price risks based on the pace of production recovery and short-term sentiment disruptions

  The report acknowledges that easing tensions in the Middle East may create a short-term headwind for aluminum price sentiment, but believes production recovery will take time and the market will remain tight over the next 6-12 months.

Asset mapping & comparison

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

• China Hongqiao Group Co., Ltd. (01378.HK)

  Core covered asset

  Strengths

  A large global aluminum producer with a relatively complete aluminum value chain; solid 1H26 profit alert; low valuation and high dividend yield.

  Weaknesses

  The stock has recently undergone a significant valuation de-rating, while the market is concerned about pressure on aluminum prices from capacity restarts and overseas expansion.

  Comparison

  The current approximately 5.2x 2026E PE and 12%+ dividend yield are considered very attractive in the report, with the target price implying approximately 118% upside.

  Risks

  Downstream demand below expectations, aluminum or alumina prices below expectations, and short-term pressure on aluminum market sentiment.

Key data

• Expected 1H26 NPATRMB17.2bnUp approximately 39% year on year and within Jefferies' RMB17-18bn forecast range.
• Implied unit net profitApproximately RMB6k/tEstimated from the 1H26 profit alert.
• Average aluminum price in 1H26RMB24k/tHigher than RMB20.3k/t in 1H25 and an important driver of earnings growth.
• 2026E PE5.2xThe report considers this valuation very attractive.
• Dividend yield12%+Based on a 65% payout ratio assumption.
• Upside to target price+118%Based on a target price of HK$43.90 versus the previous trading day's closing price of HK$20.12.
• Target price valuation assumptions2026E EPS RMB3.5; target PE 11xThe core valuation parameters Jefferies uses to derive its target price.

Impact & implications

If Jefferies' view of a tight aluminum market and resilient company earnings proves correct, the current low valuation and high dividend yield may offer an attractive risk-reward profile, leaving room for share price re-rating. Conversely, if downstream demand is weaker than expected or aluminum and alumina prices fall below expectations, earnings and achievement of the target price will come under pressure.

Risks

• Downstream demand below expectations.
• Aluminum prices below expectations.
• Alumina prices below expectations.
• Capacity restarts and accelerating expansion outside China may weigh on aluminum price expectations.
• Easing tensions in the Middle East may create a short-term headwind for aluminum price sentiment.

What to watch

• Whether the official 1H26 results are consistent with the profit alert.
• Deviations in aluminum and alumina prices from the base-case assumptions of RMB23.2k/t and RMB2.7k/t, respectively.
• The actual progress of capacity restarts and expansion outside China.
• Whether aluminum market supply and demand remain in tight balance over the next 6-12 months.
• Whether the company's payout ratio can approach the 65% assumption and support a 12%+ dividend yield.