We maintain "Buy" rating and revise up TP at HK$26.10. We maintain the forecasts of 2025F-2027F EPS to be RMB2.394, RMB2.406 and RMB2.432, respectively. We revise up TP at HK$26.10, which implies 10.0x 2025F PER, given 1) the upward revision in peer valuation multiples; and 2) its cost advantage from capacity relocation for the long run.
　　1H2025 earnings grew by 35.0% YoY, in line with the previous positive profit alert. The profit growth in 1H2025 was mainly attributable to three factors: 1) margin improvement driven by higher prices of primary aluminum and alumina; 2) improved operational efficiency (SG&A expenses declined by 5.1% YoY to RMB2.68 bn); and 3) optimized debt structure with lower finance costs (down by 17.7% YoY to RMB1.28 bn). Demonstrating strong confidence in future development, the management announced a share buyback plan of no less than amount of HK$3.00 bn, following HK$2.61 bn already spent for shares repurchase in 1H2025.
　　Capacity relocation drives further cost optimization. Yunnan Province usually experiences abundant/normal water periods in the second half of the year, compared to the five-month dry season in the first half, resulting in significantly lower power costs. In our view, due to the relatively low hydropower costs, the Company is likely to have a substantial cost reduction in the second half of this year. In Mar. 2025, The Company transferred 241,000 tons of capacity from Shandong to Yunnan Hongtai (云南宏泰), with operations commencing at the end of Mar. 2025. In Jul. 2025, Shandong Hongqiao ( 山 东 宏 桥 ) will permanently retire 448,000 tons of capacity, with 69,750 tons allocated to Yunnan Hongtai (云南宏泰) and 160,700 tons to Yunnan Honghe (云 南宏合). We believe the company's cost advantages will become more prominent in the second half of the year, considering: 1) the decrease in coal prices; and 2) the Company's ongoing progress of capacity relocation to Yunnan.
　　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.