GTHT has released a research report reiterating its "Buy" rating for CHINAHONGQIAO (01378) and increasing the target price to HK$43.2. The report indicates that the aluminum market supply is expected to remain tight in 2026, leading to an upward revision of profit forecasts. GTHT has raised its earnings per share estimates for CHINAHONGQIAO to RMB 3.603 for 2026 and RMB 3.713 for 2027.

GTHT anticipates that aluminum prices will maintain an upward trajectory in 2026. Given the current tight balance between supply and demand, aluminum prices are projected to continue their upward cycle throughout the year. Since the beginning of 2026, aluminum prices have shown an increasing trend, once reaching RMB 24,000 per tonne before experiencing a slight correction to around RMB 23,500 per tonne. Overall, GTHT expects aluminum market supply to stay constrained, providing strong support for prices.

From a supply perspective, GTHT highlights two key factors: 1) Domestic aluminum production capacity is nearing regulatory limits. By the end of 2025, China's operating aluminum capacity reached 44.59 million tonnes, approaching the ceiling of 45 million tonnes. 2) Overseas supply faces significant disruptions. For instance, the Mozal aluminum smelter in Africa, the continent's second-largest, plans to shut down in March 2026 due to rising power costs. Additionally, power shortages driven by AI computing demand are expected to impact the aluminum industry, posing a long-term risk to overseas capacity closures.

On the demand side, GTHT notes: 1) The trend of aluminum substituting for copper is accelerating. The copper-to-aluminum price ratio has reached 4.2 times, significantly higher than the historical reasonable level of 3.5 times, which will further promote the application of aluminum substitution technologies and production lines. 2) Demand from the new energy sector continues to grow, with increasing aluminum consumption from new energy vehicles and energy storage equipment.

GTHT also states that CHINAHONGQIAO will implement a high dividend strategy, benefiting from reduced future capital expenditures. By the end of 2025, the company had relocated 2.17 million tonnes of capacity to Yunnan, with 830,000 tonnes remaining in its 3 million tonne relocation plan. GTHT believes CHINAHONGQIAO will gradually implement the remaining relocation plan from 2026 onwards based on policy requirements and market conditions. Consequently, capital expenditures are expected to decrease from previous high levels. Combined with improved profitability and lower capital expenditure needs, GTHT anticipates the company's future dividend payment capacity will strengthen. In 2024, the company's dividend payout ratio reached a high of 64%. Therefore, GTHT considers the stock remains an attractive high-dividend play in the Hong Kong market.