Jefferies: CHINAHONGQIAO's strong buyback enhances shareholder returns, raising target price to HKD 26.9

According to the Zhitong Finance APP, after CHINAHONGQIAO (01378) announced its interim results and stock repurchase, Jefferies released a research report reiterating its "Buy" rating on CHINAHONGQIAO and raised the target price to HKD 26.9. Jefferies stated that the net profit for the first half of 2025 is expected to be HKD 12.4 billion (a year-on-year increase of 35%), due to its achievement of vertical integration and relatively stable production costs. The unit gross profit of aluminum/alumina increased by HKD 225/185 per ton year-on-year, mainly benefiting from the increase in average selling price (ASP). The highlight of this performance is that, in addition to the HKD 2.6 billion repurchased in the first half of 2025, there are plans for at least HKD 3 billion in stock repurchases, and the annual dividend will reach over 60%, further demonstrating the management's confidence in the company's performance.

Jefferies believes that CHINAHONGQIAO has robust operational performance. CHINAHONGQIAO reported a net profit of HKD 12.4 billion for the first half of 2025, a year-on-year increase of 35%. The ASP of aluminum increased by 2.7% year-on-year to HKD 17,853 per ton, in line with market trends, while the ASP of alumina increased by 10.3% to HKD 3,243 per ton, which is significantly higher than the overall market price trend. The unit operating cost (COGS) has been well controlled and remains competitive. The cost of aluminum slightly increased by 2%, or HKD 200, to HKD 13,300 per ton, which may be due to higher carbon anode prices (up HKD 900 year-on-year) offsetting savings from lower coal/electricity costs. The cost of alumina increased by 5%, or HKD 100, to HKD 2,300 per ton, partly due to the rise in caustic soda prices (up nearly HKD 600 year-on-year), while bauxite benefited from vertical integration.

Jefferies also pointed out the further emphasis on shareholder returns. Along with the interim results, another stock repurchase plan of at least HKD 3 billion was announced, indicating management's confidence in the company's performance. In the first half of 2025, the company repurchased and subsequently canceled over 187 million shares (approximately 2% of the issued shares), with a total value of about HKD 2.6 billion. On the other hand, CHINAHONGQIAO adjusted its dividend payment method from semi-annual to annual, meaning no interim dividend will be distributed this year. However, the emphasis on shareholder returns has not changed, and the final dividend payment will be at least in line with last year's over 60%. According to management, the reason for paying dividends once a year instead of twice is to stabilize expected dividend levels and avoid discrepancies between the first and second halves of the year (for example, 63% for the full year 2024, 56% for 1H24, and 67% for 2H24). This should not have a significant impact on long-term investors, as the dividend remains stable. More importantly, if the HKD 3 billion repurchase is completed in the second half of 2025, the total repurchase amount for 2025 will reach at least HKD 5.6 billion, which means that an additional 20% dividend can be paid on top of the over 60%