Tianshan Aluminum's 1H26 results beat expectations after excluding tax effects, and 2H26 profits are expected to remain stable

Overview

This report is a Morgan Stanley earnings review of Tianshan Aluminum (002532.SZ). The company expects 1H26 net profit to double year-over-year to Rmb4.2bn, with recurring profit of about Rmb4.1bn, up 109% year-over-year. Earnings growth is mainly driven by higher aluminum prices and improved cost control; after stripping out the approximate Rmb700mn impact from the rising Xinjiang tax rate, 2Q26 net profit could reach Rmb2.6bn, higher than Morgan Stanley’s expectation.

Core views

The core view is that Tianshan Aluminum delivered strong-quality first-half performance, and tax effects masked the better-than-expected operating performance in 2Q26. Although 2H26 aluminum prices may be pressured by overseas restarts, newly coming Indonesian capacity, and macro rate expectations, Morgan Stanley assesses that the aluminum market remains in deficit in 2026 with limited downside on prices. Combined with ramp-up at the Xinjiang production base, the company’s 2H26 earnings should remain robust.

Analysis framework

The report evaluates company profitability and valuation from guidance outlook, one-off tax impact, aluminum price and supply-demand drivers, cost control, capacity additions, and valuation model assumptions. The rating framework follows Morgan Stanley’s relative rating framework, with a stock rating of Overweight, sector view Attractive, and target price based on an abnormal earnings valuation model.

Methodology notes

• Valuation methodsResidual income valuation model

  Residual income valuation model

  The base case is derived from the residual income valuation model, which discounts earnings forecasts to 2037 and then normalizes earnings. Key assumptions include an 8.6% cost of equity, a 15% long-term ROE, and a 4% steady-state growth rate.

• RatingMorgan Stanley Relative Rating Framework

  Overweight / Equal-weight / Underweight

  Overweight means that the stock’s total return over the next 12-18 months is expected to exceed the average total return of the analyst sector coverage universe on a risk-adjusted basis.

Asset mapping & comparison

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

• Tianshan Aluminum (002532.SZ)

  Core covered name

  Strengths

  High growth in 1H26 recurring profit, improved cost control, and benefits from rising aluminum prices and Xinjiang capacity ramp-up.

  Weaknesses

  The rise in the Xinjiang tax rate is estimated to weigh on 2Q26 profit by around Rmb700mn, and profitability remains sensitive to the aluminum price cycle.

  Comparison

  Rated Overweight with a sector view of Attractive, expected to deliver higher risk-adjusted total return relative to the analyst sector coverage universe.

  Risks

  Slowing global aluminum demand, higher raw material and energy prices, and potential industry oversupply.

• Aluminum

  Key commodity and industry driver

  Strengths

  The industry is expected to remain in deficit in 2026, which may limit aluminum price downside.

  Weaknesses

  Middle East restarts, Indonesian capacity additions, and macro interest-rate expectations may pressure prices.

  Comparison

  Aluminum price movements directly affect Tianshan Aluminum’s earnings sensitivity.

  Risks

  Demand weakness, faster-than-expected supply recovery, and rising energy and raw material costs.

Key data

• 1H26 expected net profitRmb4.2bnThe company expects second-half year net profit to double year-over-year in the first half.
• 1H26 recurring profitRmb4.1bn, up 109% year-over-yearProfitability after excluding one-off items.
• 2Q26 tax impactaround Rmb700mnXinjiang tax rate increase from 15% to 25%, which hurt 2Q26 profit.
• 2Q26 net profit excluding tax impactRmb2.6bnAbove Morgan Stanley's expectation.
• Target priceRmb23.00Target price disclosed in the report tables.
• Close priceRmb11.37As of 2026-07-03.
• Target price upside102%Up/downside to price target disclosed in the report tables.
• 2026e EPSRmb2.112/26e EPS shown in the tables.
• 2026e ModelWare net profitRmb9,829.6mnModelWare net income shown in the tables.

Impact & implications

The investment implication of the report is constructive: rising taxes are a short-term accounting and tax headwind, while core operating profit is stronger on a normalized basis. If 2026 aluminum market tightness persists, the company could benefit from limited aluminum price declines and Xinjiang capacity ramp-up. The gap between target price and current price is large, supporting the Overweight rating.

Risks

• Global aluminum demand slows.
• Raw material and energy prices rise.
• Industry overcapacity.
• Middle East capacity restarts and additional Indonesian capacity coming online put pressure on aluminum prices.
• Further tax rate increases or other policy changes continue to affect net profit.

What to watch

• 1H26/2H26 aluminum price trend and pace of overseas supply normalization.
• Progress of Indonesian new aluminum capacity coming online.
• Extent of ramp-up at the Xinjiang production base.
• Whether the company can sustain cost control improvements.
• Ongoing impact of Xinjiang tax changes on margins and net profit in subsequent quarters.
• Whether Morgan Stanley adjusts its target price and rating in later reports.