Hongqiao’s net profit came in at RMB12.3bn (+35% YoY) in 1H25, which is in line with the pre-announced profit in Jun. Excluding the fair value loss of convertible bonds (CB), core net profit in 1H25 would reach RMB14.9bn (+42% YoY). While we are a bit surprised that Hongqiao did not propose interim dividends (a change from the practice of interim distribution for many years), it put out a new share buyback scheme with a minimum spending of HK$3bn, which reflects management’s confidence and helps offset the potential dilution of CB conversion, in our view. We revise up our 2025E-27E earnings forecasts by 12-14%, due to higher aluminium price (very tight industry supply with utilisation already reaching 98%) and lower coal price assumption. We revise up our TP to HK$27 (from HK$20.6) after rolling over the valuation base to 2026E, based on 8.6x P/E (1SD above historical average). The current price still offers an attractive yield of ~8% (assuming 60% payout) even after a recent rally. Maintain BUY.
　　Aluminum alloy products (64% of revenue in 1H25): The segment
　　revenue in 1H25 increased ~5% YoY to RMB51.9bn (sales volume +2.4% YoY to 2.91mn tonnes; ASP +2.7% to RMB17,853/t). This, together with an only 1.9% YoY increase in unit cost, boosted the unit gross profit by 5.4% YoY to RMB4,506/t.
　　Alumina segment (26% of revenue): The segment revenue surged ~28% YoY to RMB20.7bn (sales volume +10% YoY to 6.37mn tonnes; ASP +5% to RMB3,243/t). We calculated that the unit gross profit surged 25% YoY to RMB933/t.
　　Aluminum fabrication products (10% of revenue): The segment revenue
　　increased 6.5% YoY to RMB8bn (sales volume +3.4% YoY to 392mn tonnes; ASP +2.9% to RMB20,615/t). Helped by a stable unit cost, the unit gross profit grew 14% YoY to RMB4,815/t.
　　Continuous share buyback this year. Following the completion of ~62.3mn shares buyback (0.67% of total o/s shares) in 1Q25, Hongqiao announced in Apr a buyback scheme of RMB2bn (max.). Last Friday, Hongqiao announced another plan to spend at least RMB3bn on buyback, which represents 1.4%/4.5% of total / free float shares. According to the mandate, Hongqiao will be allowed to execute the buyback before May 2026.
　　Earnings sensitivity. We estimate every 1% increase in aluminium (AI) price will boost Hongqiao’s earnings by 3%, while a 1% decrease in coal price will increase earnings by 0.5%.