Morgan Stanley: Overweight rating on CHINAHONGQIAO (01378), rising volume and prices drive profit upward.

Morgan Stanley released a research report, assigning an "Overweight" rating to CHINAHONGQIAO (01378) with a target price of HK$28.6. The report noted that CHINAHONGQIAO's net profit for the first half of 2026 rose 39% year-on-year to RMB 17.2 billion, in line with expectations. The report pointed out that CHINAHONGQIAO's strong earnings in the first half were mainly driven by the following factors: aluminum prices rose 18.7% year-on-year due to global supply disruptions; sales volume of deep-processed aluminum alloy products increased 23.2% year-on-year. Overall gross margin expanded 5.8 percentage points year-on-year to 31.5%, compared with 25.7% in the same period last year. The net debt ratio further declined from 29% in the first half of 2025 to 21% in the first half of 2026, reflecting a continued reduction in leverage. Financing costs fell 14% year-on-year to RMB 1.1 billion, reflecting financial improvements brought about by debt structure optimization and declining interest rates. Looking ahead to the second half, Morgan Stanley believes the company's earnings are expected to remain solid. Although some production capacity in the Middle East has recovered earlier than expected and output in Indonesia is gradually increasing, global aluminum supply is still in an overall deficit this year, and aluminum prices are expected to remain elevated, providing support for CHINAHONGQIAO's earnings in the second half. Morgan Stanley emphasized that at the current share price, CHINAHONGQIAO's valuation is attractive, with a considerable dividend yield.