Guotai Junan International released a research report maintaining a "BUY" rating on CHINAHONGQIAO (01378) and raising the target price from HK$18.00 to HK$26.10. The target price increase is based on two key factors: higher industry valuation multiples and the company's long-term benefits from cost advantages brought by capacity migration.

Guotai Junan International noted that CHINAHONGQIAO's first-half 2025 profit increased 35.0% year-on-year, consistent with the previously released profit alert. The first-half profit growth was primarily driven by three factors: improved profit margins from rising aluminum and alumina prices; enhanced operational efficiency; and optimized debt structure leading to reduced financial costs.

Management expressed confidence in future development and announced a share buyback program of no less than HK$3 billion, following the company's investment of HK$2.61 billion in share buybacks during the first half of 2025.

Guotai Junan International also highlighted that capacity transfer has further driven cost optimization. Compared to the five-month dry season in the first half, Yunnan Province typically enters wet/normal water seasons in the second half, significantly reducing electricity costs. Given the relatively low hydroelectric power costs, the company's costs are expected to decline substantially in the second half of this year.

In March 2025, the company relocated 241,000 tonnes of capacity from Shandong to Yunnan Hongtai, with related operations commencing at the end of March 2025. In July 2025, Shandong Hongqiao permanently retired 448,000 tonnes of capacity, with 69,750 tonnes transferred to Yunnan Hongtai and 160,700 tonnes transferred to Yunnan Honghe.

Considering declining coal prices and continued capacity migration to Yunnan, Guotai Junan International believes CHINAHONGQIAO's cost advantages will become more pronounced in the second half.