Bank of America: Fourth-quarter earnings are expected to be supported, maintaining a "Buy" rating on CHINAHONGQIAO, with the target price raised to HKD 35

According to the Zhitong Finance APP, Bank of America has released a performance review of China Hongqiao (01378) subsidiary Shandong Hongqiao and maintained a "Buy" rating for the stock, raising the target price from HKD 26.00 to HKD 35.00. China Hongqiao announced that in the first three quarters of 2025, its subsidiary Shandong Hongqiao achieved total operating revenue of RMB 116.926 billion, an increase of 6.23% year-on-year; net profit was RMB 19.371 billion, an increase of 23.13% year-on-year. The net profit for the third quarter was RMB 6.9 billion, an increase of 18% year-on-year and 14% quarter-on-quarter, which is roughly in line with expectations; the gross profit margin for the third quarter expanded by 3 percentage points quarter-on-quarter to 26%. Bank of America believes that the profit growth mainly comes from two aspects: 1) Margin expansion - according to the bank's industry tracking data, the industry aluminum profit increased by RMB 900/ton quarter-on-quarter in the third quarter, and alumina profit increased by RMB 200/ton quarter-on-quarter; 2) Contribution from the Wenshan project - the company acquired the remaining 25% equity of the Yunnan Wenshan project at the end of the second quarter, and this project began to be consolidated and contribute profits from the third quarter. Bank of America stated that benefiting from low inventory, stable upstream supply, and seasonal demand support from the power grid, the Chinese aluminum industry is expected to remain resilient in the fourth quarter, with a slight strengthening of aluminum prices. Currently, the spot aluminum price has risen to over RMB 21,000 per ton, and the alumina price remains in the range of RMB 2,800–2,900 per ton, with aluminum profit margins expanding to over RMB 5,000 per ton, supporting fourth-quarter profitability. According to industry tracking data, spot aluminum profit margins further increased by RMB 600/ton compared to the third quarter. Bank of America has adjusted its aluminum price forecast based on the latest market prices, raising the 2025 aluminum price expectation to RMB 20,600/ton (+RMB 100/ton); the 2026 and long-term forecasts have been raised to RMB 21,000/ton. Accordingly, the bank has raised its profit forecast for China Hongqiao for 2025–2027 by 5%–23%, expecting a net profit of RMB 26 billion in 2025 (up 17% year-on-year) and a net profit of RMB 30 billion in 2026 (up 15% year-on-year). Bank of America added that the reasons for maintaining a "Buy" rating on China Hongqiao include: 1) A constructive view on aluminum prices; 2) Attractive dividend yield (6%–7% under a 63% payout ratio assumption); 3) The Ximangdu project is expected to be put into production by the end of 2025, with an expected contribution of about 3% to the company's profits in 2026, potentially increasing to 9% in the long term; 4) Ongoing buybacks help support the stock price. The bank stated that the current target price corresponds to a forecast P/E ratio of 10 times for 2026, which remains attractive compared to Chinese copper companies (12–16 times) and gold companies (16–17 times)