We maintain "Buy" rating with TP at HK$18.00. Leveraging its advantages in resource integration and fully aluminum value chain positioning, we believe China Hongqiao (or the “Company”) will be a beneficiary amid aluminum supply constraints and demand recovery. We forecast the Company's 2025F-2027F EPS to be RMB2.394, RMB2.405 and RMB2.432, respectively. We set our TP at HK$18.00, which implies 7.0x 2025F PER.
　　Record-high net profit in 2024; high dividend brought surprise. The shareholders' net profit in 2024 recorded RMB22.4 bn, up by 95.2% YoY, which was in line with the previous announcement in Dec.
　　2024. The Company reached the largest shareholders' profit since its listing in 2011, mainly driven by the favorable cycle of global aluminum sector. Moreover, positive surprise came from the high dividend payout ratio. The Company's final dividend of 2024 is HK$1.02/share. This, together with the interim dividend of HK$0.59/share, representing a dividend payout ratio of 63.4%.
The Company is going to maintain its cost advantages in the sector. Firstly, the Company has bauxite development projects in Guinea, Indonesia, and Australia. Notably, the Guinea bauxite project, through long-term agreements, enables the Company to secure bauxite at below-market prices with less price volatility. Secondly, as thermal coal prices show a downward trend in 1Q2025, the Company　stands to benefit from reduced power generation costs. Thirdly, the gradual relocation of some production capacity to Yunnan Province, leveraging hydropower supply, will further help to reduce the costs.
Catalysts: 1) rise in aluminum price; 2) more stimulus policies for downstream aluminum products in China; and 3) asset to be listed on the A-share market.
Downside risks: 1) aluminum price slump; 2) sharp rebound in input costs such as bauxite and coal; and 3) overseas projects risk.