A golden pit emerges! China Hongqiao’s dividend yield approaches 10%, as the aluminum cycle gains momentum.

By Dong Nuan

Recently, global risk appetite has declined, weighing on cyclical sectors overall, and China Hongqiao (01378.HK) has undergone a temporary price correction. However, stripping away the fog of market sentiment, the company's fundamentals have not deteriorated—in fact, they continue to improve.

At the current share price of approximately HK$26.78, the stock trades at just 8–9 times its estimated 2026 earnings, placing it firmly in the lower end of its historical valuation range. More importantly, with an expected dividend yield of 8%–10%, the downside is well cushioned. Notably, on June 8, the company’s major shareholder purchased 21 million shares on the open market at an average price of about HK$26.46, amounting to roughly HK$556 million, increasing their stake from 62.10% to 62.31%. The shareholder explicitly stated that further purchases cannot be ruled out—a clear, tangible signal reinforcing management’s strong confidence in the company’s intrinsic value. This recent pullback stems not from downgraded earnings expectations but from panic-driven, irrational selling, creating a rare golden entry opportunity for disciplined investors.

Driven by macro sentiment, not weakening fundamentals

The primary driver behind this correction is sector-wide macro factors: heightened global risk aversion has triggered capital outflows from cyclical stocks, compounded by profit-taking from some previously positioned investors. This is a broad trend across the entire non-ferrous metals sector, not an issue specific to China Hongqiao.

In fact, the company’s fundamentals have not weakened; on the contrary, they continue to demonstrate robust resilience. In 2025, the company reported attributable net profit of RMB 22.636 billion, fully in line with market expectations. Entering 2026, industry conditions have further improved: the average domestic electrolytic aluminum price in Q1 was around RMB 24,000 per ton, up approximately 20% year-over-year. Its core subsidiary, Hongqiao Holding, posted Q1 net profit of RMB 6.8 billion, underscoring strong certainty for full-year earnings growth.

As of June 4, the main Shanghai Aluminum futures contract remained elevated at RMB 24,520 per ton, highlighting increasingly evident supply rigidity in the sector. Compared with peers—whose share prices have also corrected—China Hongqiao stands out with superior fundamental resilience, supported by its 6.46 million tons of electrolytic aluminum capacity, 85% self-sufficiency in alumina, and cost advantages from Yunnan hydropower.

Triple-bottom convergence solidifies an absolute margin of safety

Once short-term sentiment-driven noise fades, it becomes clear that China Hongqiao sits precisely at the confluence of a valuation bottom, earnings bottom, and industry cycle bottom—delivering an exceptionally strong margin of safety.

Valuation floor: 8%–10% dividend yield caps downside risk

The current share price implies a 2026 forward P/E of just 8–9x, representing an absolute historical valuation low. Moreover, the company’s consistent high-dividend policy provides investors with a solid safety cushion. Calculations show that under various share price and earnings scenarios, the dividend yield remains highly attractive:

Even if the share price remains unchanged at HK$26.78, investors would still earn a stable return significantly exceeding those of bank wealth management products or government bonds. Based on an estimated 2026 net profit of RMB 30 billion, the implied dividend yield already reaches approximately 8.4%; if earnings further recover to RMB 33 billion, the yield would rise to around 9.2%. Should the share price dip further to HK$25, the dividend yield would exceed 10%, fully absorbing any additional downside risk.

Earnings floor: The bottom of profitability has been confirmed, with ample room for earnings upside.

With an estimated net profit of RMB 22.636 billion in 2025, the company’s earnings floor has been clearly established. In 2026, the company’s performance will be driven by three key growth catalysts:

First, direct gains from rising aluminum prices: based on its annual capacity of 6.46 million metric tons, every RMB 100 per ton increase in aluminum prices translates into approximately RMB 5.5 billion of additional annualized net profit;

Second, continuous cost optimization: hydropower in Yunnan is operating at full capacity year-round. According to Citi Research, Yunnan’s electricity price in Q1 has dropped to RMB 0.38–0.39 per kWh, a significant year-over-year decline, further reducing per-ton aluminum production costs;

Third, ongoing realization of economies of scale across the entire value chain: bauxite self-sufficiency stands at 85%, and the Boffa project in Guinea ships 15 million metric tons of bauxite annually, covering roughly 70% of raw material needs, effectively hedging against raw material price volatility.

Industry floor: Supply-demand dynamics continue to tighten, making a tight balance the new norm.

At the industry level, the global aluminum market’s tight supply-demand equilibrium has become irreversible. On the supply side, China’s installed electrolytic aluminum capacity stands at 44.83 million metric tons—just shy of the 45-million-ton capacity ceiling—with utilization rates exceeding 98%, leaving virtually no room for additional capacity expansion.

According to a Morgan Stanley research report, China has already implemented measures to control aluminum overcapacity. Combined with Guinea’s upcoming announcement in June of bauxite export restrictions, global raw material supply faces dual tightening pressures. Overseas, multiple aluminum smelters in the Middle East have halted operations due to geopolitical conflicts, with a recovery timeline of 4–6 months, further widening the global supply gap.

(Source: Morgan Stanley research report dated May 29)

On the demand side, China’s domestic aluminum consumption in 2025 is projected at 46.34 million metric tons, compared to production of only 44.23 million metric tons—a supply-demand shortfall of 2.11 million metric tons. Emerging sectors such as lightweighting in new energy vehicles, photovoltaic module manufacturing, and AI data center construction are continuously creating new sources of aluminum demand, underpinning clear long-term industry strength.

Multiple catalysts are poised to ignite, and valuation recovery is imminent.

Current market earnings expectations for China Hongqiao remain conservative, but a series of imminent catalysts will accelerate the company's valuation recovery.

In the short term, Guinea’s upcoming bauxite export restrictions set to take effect in June will push up global alumina costs; slow recovery of aluminum supply from Middle Eastern smelters, combined with a clear inventory drawdown trend in domestic aluminum ingots—falling to 1.386 million metric tons as of early June—supports sustained high aluminum prices.

In the medium term, Citi forecasts China’s solar installation target to reach 330 GW by 2026, and the deepening trend toward lightweighting in electric vehicles will continue to drive aluminum demand.

In the long term, structurally driven aluminum demand from the AI data center construction boom, along with policy expectations that the 45-million-metric-ton production capacity ceiling will remain in place through at least 2030, will provide sustained growth momentum for the industry.

There is strong consensus among both international and domestic institutions regarding the company’s investment value: Morgan Stanley maintains an 'Overweight' rating with a target price of HK$49.8; JPMorgan keeps an 'Overweight' rating and raised its target price from HK$34 to HK$40, citing the company’s integrated industrial chain as its core competitive advantage; Citi retains a 'Buy' rating with a HK$48 target price, implying approximately 60% upside potential; Northeast Securities initiated coverage with a 'Buy' rating and a HK$42 target price, forecasting the company’s net profit to reach RMB 34.2 billion, RMB 37.6 billion, and RMB 38.6 billion in 2026–2028, corresponding to P/E multiples of just 8.5x, 7.7x, and 7.5x, respectively.

Capitalize on the sentiment-driven dip to position in the global aluminum leader.

The recent share price correction in China Hongqiao stems fundamentally from short-term market sentiment, not a deterioration in fundamentals. Today, a triple convergence of valuation floor, earnings floor, and industry cycle bottom has formed. The controlling shareholder’s purchase of over HK$550 million in shares sends a strong signal of a market bottom, while the attractive dividend yield of 8–10% firmly caps downside risk. Meanwhile, structural supply constraints in global aluminum and steadily rising new demand unlock significant long-term upside potential.

In an environment of heightened uncertainty, certainty itself is the most valuable asset. As the world’s second-largest aluminum producer, China Hongqiao—with its full-chain cost advantages and solid operational execution—is now positioned at the outset of accelerated earnings growth. This sentiment-driven dip presents a rare and valuable entry window that every rational investor should seize.

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