CICC Reaffirms 'Outperform' on China Hongqiao Amid Strong H1 Profit and Buybacks

China Hongqiao Group (1378.HK) had its "Outperform" rating reaffirmed by investment bank CICC, following a robust first-half financial report that highlighted significant profit growth and substantial capital returns to shareholders.

Profitability Soars on Higher Aluminum Prices

According to a CICC research note, China Hongqiao's first-half results were in line with market expectations. The company reported revenue of ¥87.51 billion, a 7.98% year-over-year increase. Net profit surged 39.23% over the same period to reach ¥17.21 billion.

The bank attributed the strong performance primarily to rising aluminum prices, which significantly boosted margins. CICC noted that the gross profit per ton for the company's aluminum alloy products jumped 81.1% year-over-year to ¥8,161.

Key performance indicators for the first half include:

• Aluminum Alloy Sales: 2.811 million tons
• Alumina Sales: 6.917 million tons, an 8.6% year-over-year increase
• Average Electrolytic Aluminum Price: ¥24,100 per ton
• Average Alumina Price: ¥2,704 per ton

Buybacks and Balance Sheet Strength Signal Confidence

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CICC emphasized that the company's large-scale share buybacks and a stake increase by its controlling shareholder demonstrate strong confidence in its long-term outlook. In the first half, China Hongqiao repurchased 159 million shares for a total of HK$5.286 billion, which were subsequently canceled. Additionally, its controlling shareholder increased its stake in June by purchasing 41.5 million shares for HK$1.1 billion.

The company also strengthened its financial position, with its asset-liability ratio declining to 40.5%, a 1.7 percentage point improvement from the end of the previous year. Financial expenses fell 13.6% year-over-year, aided by a reduction in interest-bearing debt and lower financing rates.

Strategic Focus on Green Transition and Vertical Integration

CICC's report also highlighted China Hongqiao's strategic initiatives to build an integrated and green industrial chain. The company is securing upstream bauxite resources in Guinea to ensure a stable supply of raw materials.

In its midstream operations, the company is advancing its green transition by relocating some production capacity to Yunnan province, which is rich in hydropower. Downstream, China Hongqiao is optimizing its product mix by expanding its presence in the automotive lightweighting sector and developing a green recycling industry.