We maintain our positive stance on Hongqiao as our latest sector analysis suggest that the global aluminium deficit will continue in 2026-27 . We revise up our aluminium ASP forecast by 12%/7% in 2026E/27E, while revising down our bauxite price forecast by 16%/18% due to sufficient supply. Accordingly, we revise up our 2026E/27E earnings forecast by 27%/12%. We revise up our TP to HK$45 (from HK$39), based on 11x 2026E P/E which is equivalent to the historical average plus 2SD (methodology unchanged; premium to reflect the supply constraint-driven upcycle). We expect the share price will be driven more by earnings rather than multiple expansion, as 10-11x forward P/E is the ceiling over the past decade. Maintain BUY.
Global deficit to continue. Our latest analysis on global aluminium supply and demand suggests that the global deficit will continue in 2026E, due to (1) almost full utilisation rate in China (~99% of the policy capacity cap of 45mt in Dec 2025), and (2) limited new capacity overseas. We forecast aluminium price to gain 15% YoY in 2026E. While we see more potential commencement of ex-China capacity in 2027E, we expect the aluminium price will continue to stay high as deficit will remain, though likely to narrow.
Earnings forecast. We forecast Hongqiao to deliver RMB26.2bn of core net profit (excluding fair value change) in 2025E, up 7% YoY. We expect net profit growth to accelerate to 34% YoY in 2026E, driven largely by higher aluminium price.
Earnings sensitivity. We estimate every 1% increase in aluminium price will boost 2026E earnings by 2.3%, while a 1% decrease in coal price will increase earnings by 0.3%.
Key risks: (1) unexpected removal of capacity cap in China; (2) faster-thanexpected overseas capacity ramp-up; (3) slowdown of global economy; (4) sharp increases in input costs such as bauxite and coal.