DBS Boosts Target Price 55% on Cost Dominance
On March 26, DBS Bank reinforced its confidence in China Hongqiao (01378), maintaining a "Buy" rating and raising its 12-month price target by 55% to HK$45 from HK$29. The upgrade reflects expectations of robust earnings growth, underpinned by the company's commanding position in the global aluminum market, where it holds 14% of China's and 8% of the world's production capacity.
The bank's analysis highlights a structural cost advantage of roughly 2,000 yuan per ton compared to its peers. This edge is derived from a fully integrated industry chain, spanning bauxite mining in Guinea and alumina production in Indonesia to electrolytic aluminum operations in China. China Hongqiao is further lowering expenses by migrating some production capacity to Yunnan province to access cheaper hydropower. This operational strength is compounded by a favorable market outlook, with company management forecasting the average aluminum price will increase 11% to 23,000 yuan per ton in 2026.
Financials Strengthen with 42.2% Debt Ratio and 65% Payout
China Hongqiao's financial discipline is a key pillar of the upgraded valuation. The company's cash reserves increased 14.3% year-over-year to 51 billion yuan, providing significant operational flexibility. Simultaneously, its asset-to-liability ratio improved, declining by 6 percentage points to a solid 42.2%, indicating a healthier and more resilient balance sheet.
To enhance shareholder returns, the company has committed to a long-term dividend payout ratio of 65% and has allocated capital for share buybacks. At current levels, this policy delivers an attractive dividend yield of approximately 6%. This clear commitment to returning capital, combined with a deleveraged balance sheet, is designed to bolster long-term investor confidence.
