Morgan Stanley maintains Overweight on Tianshan Aluminum, slightly lowers target price to Rmb23.00

Overview

This is a Morgan Stanley company research and event note on Tianshan Aluminum, focused on updating the risk-reward framework and commodity price assumptions. After incorporating the latest aluminum, alumina, bauxite, and coal forecasts from the global commodities team, the report slightly lowers the target price to Rmb23.00/share while maintaining an Overweight rating.

Core views

The core view is that Tianshan Aluminum remains relatively attractive: domestic aluminum sales are expected to grow modestly, aluminum prices are supported by improving global industry fundamentals, and the company's 2026-2027 production releases, earnings improvement, and relatively cheap valuation together support the overweight view. At the same time, a higher degree of raw-material self-sufficiency and overseas upstream expansion strengthen cost competitiveness.

Analysis framework

The report uses a risk-reward framework, linking bullish, base, and bearish scenarios to aluminum prices, alumina prices, demand, and supply disruptions, and estimates the base-case target price using a residual income model. The research also compares the company's earnings forecasts with market consensus and lists upside and downside risks that could affect the rating and target price.

Methodology notes

• Valuation methodsResidual Income Valuation Model

  Residual income valuation

  The base-case target price comes from a residual income model. The report discounts earnings forecasts through 2037 before normalizing them, with key assumptions including an 8.6% cost of equity, 15% long-term ROE, and 4% steady-state growth rate.

• Risk-rewardRisk Reward Framework

  Scenario target price

  The report ties bullish, base, and bearish scenarios to different aluminum and alumina price assumptions, as well as supply-demand assumptions, to show the target-price range and main drivers.

• Model methodologyMorgan Stanley ModelWare

  Research model framework

  The report notes that, unless otherwise specified, the relevant metrics are based on the Morgan Stanley ModelWare framework.

Asset mapping & comparison

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

• Tianshan Aluminum / 002532.SS

  Covered company

  Strengths

  The aluminum business benefits from higher aluminum prices and production releases; a high degree of raw-material self-sufficiency and overseas upstream expansion help stabilize input supply and strengthen cost competitiveness.

  Weaknesses

  Earnings are sensitive to cost variables such as alumina, bauxite, coal, and power; 2026 EPS has been lowered due to higher raw-material price assumptions.

  Comparison

  The report argues that, relative to peers in coverage, the company has advantages in production releases, earnings improvement, and a cheaper valuation.

  Risks

  Slower global aluminum demand, higher raw-material and energy prices, industry overcapacity, weaker-than-expected supply disruptions, or production releases below expectations.

• Aluminum

  Core commodity exposure

  Strengths

  Improving global industry fundamentals and tighter supply can support aluminum prices and increase the profit contribution of the company's aluminum business.

  Weaknesses

  If demand is weak or supply is ample, lower aluminum prices will compress earnings and valuation.

  Comparison

  Aluminum prices are one of the key variables driving the differences among the bull, base, and bear-case target prices.

  Risks

  Slower global demand, supply recovery faster than expected, industry oversupply.

Key data

• RatingOverweightThe report explicitly states that it is maintaining OW.
• Target priceRmb23.00/shareSlightly lowered versus the prior forecast.
• Bull-case target priceRmb28.00Assumes strong demand and severe supply disruptions.
• Bear-case target priceRmb11.50Assumes weak demand and ample supply.
• 2026 EPS change-4%Affected by higher alumina, bauxite, and coal price assumptions.
• 2027 EPS change+11%Raised versus the prior forecast.
• 2028 EPS change+1%Slightly raised versus the prior forecast.
• Base-case 2026 aluminum price assumptionRmb24,309/ton, YoY +18%Also assumes alumina prices fall to Rmb2,680/ton, YoY -18%.
• Bull-case 2026 aluminum price assumptionRmb28,024/ton, YoY +42%Also assumes alumina prices at Rmb3,165/ton, YoY -2%.
• Bear-case 2026 aluminum price assumptionRmb18,736/ton, YoY -6%Also assumes alumina prices fall to Rmb2,110/ton, YoY -34%.
• Cost of equity assumption8.6%Composed of a 1.8% risk-free rate, 7% risk premium, and 0.97 beta.
• Long-term ROE assumption15%Used in the base-case residual income valuation.
• Steady-state growth rate assumption4%Used for the normalization phase after 2037.

Impact & implications

For investors, the implication is that Tianshan Aluminum's near-term earnings estimates are being pressured by higher raw-material price assumptions, but the medium-term investment thesis still depends on aluminum prices holding up, production releases materializing, and cost advantages being realized. If aluminum demand improves, supply disruptions persist, or raw-material and energy costs decline, the stock could have upside; conversely, slower global aluminum demand, higher raw-material and energy prices, industry oversupply, or production releases below expectations would weaken the thesis.

Risks

• Slower global aluminum demand.
• Higher raw-material and energy prices, especially alumina, bauxite, coal, and power costs.
• Industry overcapacity.
• Production releases in 2026 and 2027 falling short of expectations.
• Easing supply disruptions or fewer-than-expected maintenance outages, weakening support for aluminum prices.
• Potential business relationships between the research firm and the covered company; investors should treat this report as only one factor in investment decisions.

What to watch

• The pace of production releases in 2026 and 2027.
• Trends in aluminum prices and global aluminum supply-demand fundamentals.
• Changes in alumina, bauxite, coal, and power costs.
• The contribution of overseas upstream expansion to raw-material supply stability.
• Whether demand is better than expected and whether supply disruptions persist.
• Changes in the gap between the company's earnings forecasts and market consensus.