Deutsche Bank has issued a fresh research note reiterating its "Buy" recommendation on CHINAHONGQIAO (01378), setting a 12-month price target of HK$33. The bank highlighted the company's solid first-half 2026 results, which exceeded market expectations on net profit, while also pointing to a projected surge in free cash flow that could underpin sustained generous cash returns to shareholders.
The report noted that CHINAHONGQIAO delivered a net profit of approximately RMB 17.2 billion for the first half of 2026, representing a 39% year-on-year increase and coming in about 6% above consensus estimates. This performance aligned with the profit alert the company issued in early July. First-half EBITDA reached RMB 30.2 billion, slightly ahead of forecasts, driven primarily by better-than-expected results in the aluminium processing segment, which effectively offset a modest shortfall in the aluminium and alumina operations.
Capital expenditure for the period totalled RMB 3.7 billion, lower than anticipated, resulting in a net debt position that was more favourable than previously estimated. Nevertheless, the company has maintained its full-year capex guidance of RMB 15-16 billion. Regarding shareholder returns, Deutsche Bank anticipates that CHINAHONGQIAO will sustain a dividend payout ratio in 2026 comparable to that of 2025. Based on a 65% payout ratio, the full-year dividend would equate to approximately HK$2.7 per share, implying a dividend yield of around 11%. The company is also expected to continue its share buyback programme.
The bank emphasised that the current valuation remains attractive, with the stock trading at only 3.5 times forward 2027 EV/EBITDA and offering a free cash flow yield of roughly 18%. As free cash flow is set to improve significantly through 2026 and 2027, the company's capacity for cash returns is poised to strengthen further.
Additionally, the report flagged that CHINAHONGQIAO's core operating subsidiary, Hongqiao Holdings (listed on the Shenzhen Stock Exchange), has recently applied for regulatory approval to conduct an equity placement of up to 10% of its shares, aiming to raise as much as RMB 12 billion. Proceeds would be earmarked for future capital expenditure and to enhance liquidity and free float. Given the lengthy approval process, the placement is expected to be completed in 2027 or later. At current share prices, a RMB 12 billion raise would see CHINAHONGQIAO's stake in Hongqiao Holdings decline from 88.99% to just under 85%. Deutsche Bank views this placement as broadly neutral to the overall valuation of CHINAHONGQIAO.
On the capacity front, CHINAHONGQIAO continues to shift its smelting operations to Yunnan province, a region rich in hydropower resources. Approximately 2.2 million tonnes per year of capacity have already been relocated, with a medium-term target of around 3 million tonnes per year. Deutsche Bank expects the pace of migration to remain steady over the coming years, though the cadence will be influenced by local and national policies. Meanwhile, domestic primary aluminium production was robust in the first half, with June annualised output reaching 48.4 million tonnes, before easing to 45.9 million tonnes in July. Looking ahead, the bank expects China's 4.5 million tonne annual capacity cap to remain broadly intact, with regulatory enforcement potentially tightening in the second half of the year.