It is widely acknowledged that since September 19th, the Hong Kong stock market has been greeted with significant positive news, causing a market frenzy, with even giant tech stocks like Tencent Holdings (00700.HK) experiencing a surge at one point.
In this round of a general market uptrend, the share price of China Hongqiao Group (01378.HK) has also seen a strong surge. However, unlike many Hong Kong stocks that experienced a significant pullback in the subsequent market adjustment, China Hongqiao has embarked on an independent upward trend, with its share price now approaching an all-time high.
Why has the share price trend of China Hongqiao been stronger than the market?
Two major factors contribute to the takeoff of its performance.
China Hongqiao Group is a large-scale enterprise that integrates the entire aluminum industry chain, including thermal power, mining, alumina, liquid aluminum alloy, aluminum alloy ingots, aluminum alloy cast rolling products, aluminum busbars, high-precision aluminum plates, foils, and new materials. As of December 31, 2023, China Hongqiao has established thirteen production bases in Zouping, Weiqiao, Bincheng District, Huimin, Yangxin, Beihai, Yunnan Honghe Prefecture, Indonesia, and Guinea, with an annual operating capacity of about 6.46 million tons of aluminum products, and owns 17.5 million tons and 2 million tons of alumina production capacity in China and Indonesia, respectively, while the Guinea project stably maintains an annualized capacity of about 50 million tons of bauxite per year.
On August 16th, China Hongqiao disclosed its performance information for the first half of 2024. The data shows that in the first half of the year, China Hongqiao achieved a revenue of 73.592 billion yuan, a year-on-year increase of 11.95%, and a net profit attributable to the parent company of 9.155 billion yuan, a staggering year-on-year increase of 272.66%.
It is reported that the performance of China Hongqiao is greatly influenced by aluminum prices and energy prices, with the former determining the company's revenue and the latter largely affecting the company's costs.
China Hongqiao also analyzed that the factors contributing to the significant increase in profit performance in the first half of 2024 include: 1) The average selling prices of the group's aluminum alloy products and alumina products both increased compared to the same period in 2023, with an increase in sales volume, and the purchase prices of main raw materials such as coal and anode carbon blocks decreased; 2) The profit base in the first half of 2023 was relatively low.
Specifically, in the first half of the year, China Hongqiao's revenue from aluminum alloy products was about 49.312 billion yuan, a year-on-year increase of 7.2%, accounting for 67.0% of the total revenue, mainly due to a rise in the average selling price of aluminum alloy products by about 6.7%; the revenue from alumina reached 16.2 billion yuan, a year-on-year increase of 19.7%, accounting for 22.0% of the total revenue, mainly due to a rise in the average selling price of alumina products by about 16.9%; the revenue from aluminum alloy processing products was 7.582 billion yuan, a year-on-year increase of 34.3%, accounting for 10.3% of the total revenue, mainly due to an increase in the sales volume of aluminum alloy processing products.The real estate market has once again received favorable news, and aluminum prices are soaring.
It is worth noting that since entering September, China Hongqiao has continued to receive good news.
On the one hand, since September, domestic policies have been introduced frequently to stimulate the real estate market, which is beneficial to economic growth and significantly beneficial to the bulk building materials market, which is also one of the important downstream markets for China Hongqiao.
On the other hand, recently, the rainy season in Guinea and local policy factors have led to disruptions in the shipment of bauxite, and some downstream customers have indicated that the supply of long-term ore contracts is still unstable in the short term, and the duration is uncertain. It is understood that the ore inventory of most alumina plants is generally 1-2 weeks, so fluctuations in ore supply are very likely to affect the production of alumina plants.
The concerns about Guinea's export disruptions have spread to China, and coupled with a series of domestic stimulus policies, have driven the price of alumina to soar. The main alumina futures contract in the domestic market once broke through the psychological barrier of 5,000 yuan/ton in recent days, setting a new high since its listing.
At the same time, the main aluminum contract in Shanghai has also seen a strong rise since mid-September.
For China Hongqiao, the rise in alumina and electrolytic aluminum prices may increase the company's performance, which is also the reason why its stock price can rise independently against the overall market trend.
In fact, the trends of stocks such as China Aluminum (02600.HK), Tianshan Aluminum (002532.SZ), and Yunnan Aluminum (000807.SZ) are also significantly stronger than the market.
How to view the future prospects?
From the perspective of institutional views, Guohai Securities released a research report on October 22, stating that in the short term, domestic policies continue to exert force, and there are still further expectations. The actual realization on the demand side is good, and the inventory of aluminum ingots continues to decline, but it is still necessary to pay attention to subsequent changes in demand. In the short term, the supply of bauxite is still tight, and the rainy season in Guinea affects the shipment of bauxite, driving the continuous rise in domestic and international alumina prices. Companies with integrated operations will benefit significantly, and investment opportunities in the sector should be watched. In the long term, the long-term supply increase in the aluminum industry is limited, and there are still growth points in demand, and the industry may maintain high prosperity.Debon Securities also pointed out in recent research reports that the Federal Reserve's interest rate cut cycle has begun, with both domestic monetary and fiscal policies exerting their strength. There is a comprehensive optimism for investment opportunities in the non-ferrous metals sector, with precious metals expected to have a long bull market, and domestic demand-related varieties may have greater elasticity. In terms of industrial metals, policy-driven economic expectations continue to improve, and the prices of industrial metals related to the domestic economy are expected to rebound, with elasticity: Aluminum > Copper > Minor Metals > Rare Earths.
Specifically, for China Hongqiao, multiple institutions such as HSBC, Jefferies, and Shenwan Hongyuan have recently expressed optimism about the company's prospects. Among them, Shenwan Hongyuan pointed out in its research report that considering China Hongqiao is an integrated aluminum production enterprise with obvious advantages, it leads in the layout of overseas bauxite resources, and has a high rate of self-sufficiency in alumina and electricity. Against the backdrop of the increasing dependence of domestic bauxite on foreign sources, coupled with the low operation of thermal coal prices, the company's cost advantages are prominent. With the improvement of the aluminum industry's prosperity, the company's performance is expected to continue to grow.
Conclusion
It is worth mentioning that as the leader in the aluminum electrolysis industry, China Hongqiao and China Aluminum have previously been selected for the "Hong Kong Stock Connect 100 Strong" list with their strong strength.
According to the official website of the Hong Kong Stock Connect 100 Strong, the 2024 Hong Kong Listed Companies Development Summit Forum and the 11th "Hong Kong Stock Connect 100 Strong" Awards Ceremony, hosted by the Hong Kong Stock Connect 100 Strong Research Center, co-organized by Caihua Community and Futu AnYi, and supported by media organizations such as the Hong Kong Takungpao Group, will be held at the Hong Kong Convention and Exhibition Center on the afternoon of November 11, 2024. This event will deeply discuss how to further consolidate Hong Kong's position as a global wealth management hub and capital market fundraising center, as well as how to enrich the financial technology ecosystem under the background of the new era.
Under the "warm wind" of the industry, whether China Hongqiao and China Aluminum can be selected again for the "Hong Kong Stock Connect 100 Strong" list is worth paying attention to.