In recent years, fluctuations in the Hong Kong stock market have clearly increased due to multiple adverse factors such as the operating cycle of the macroeconomic economy and frequent “black swan” incidents. However, it is the so-called “heavy quality of a bear market”. In a volatile market environment, investors' decisions may instead experience “removing falsehood and preserving truth,” and high-quality assets will be more likely to be recognized and sought after by the market.

Zhitong Finance App believes that, especially in the current market environment, the amount of dividends may be seen as an important criterion for judging whether a company has a sufficient margin of safety. After all, considering the Fed's aggressive monetary tightening policy and rising geopolitical risks recently, the overall return on capital will probably be inflexible in the future under many unfavorable conditions. In this context, companies that allocate high dividends are certainly a relatively safe strategy.

If the selection targets are based on generous dividends, China Hongqiao (01378), the leader in the electrolytic aluminum industry, is naturally a choice that cannot be ignored. According to the announcement previously disclosed by China Hongqiao, the company's board of directors decided to pay an interim dividend of HK12 cents per share and a special dividend of HK22 cents per share in early December this year. The share registration date is November 17.

Considering that China Hongqiao only paid an interim dividend and not a special dividend last year, the company's announcement of a special dividend this time can be counted as exceeding market expectations. At market prices, China Hongqiao's current dividend rate seems to be over 7%. Also, China Hongqiao has had a tradition of paying final dividends since it went public, so looking at it throughout the year, it can be expected that the company's book dividend will reach a higher level.

Looking at the long term, in fact, China's Hongqiao is known for its fine tradition of generously paying dividends. According to data from trading software, China Hongqiao has accumulated 16 dividends since listing, with a cumulative dividend amount of 39.188 billion yuan (RMB, same unit). Of these, in the last five complete years, China Hongqiao's total payout has reached 21.48 billion yuan.

Faced with a challenging market background, China Hongqiao insists on generously rewarding investors. This further highlights the company's confidence in its own development prospects, and once again shows that it has always given priority to giving back to shareholders.

Looking back on the first half of the year, although China's Hongqiao faced considerable pressure from adjustments in the electrolytic aluminum industry, the company's own endogenous growth momentum continued to show results, and its structural highlights were prominent.

For example, in terms of core financial data, China Hongqiao's net profit more than doubled month-on-month in the second quarter of this year, showing signs of a V-shaped recovery in the company's profit.

Another example is that thanks to China's Hongqiao's active and steady capital management strategy, the company's balance ratio was optimized to 47.92% in the first half of the year, a new low since 2012. At the same time, China's Hongqiao's resilience to risks is also constantly being strengthened. According to the data, by the end of June, the company's cash and cash equivalents reached 29.777 billion yuan, an increase of about 8.7% over the end of 2022. The net cash inflow from China's Hongqiao business activities in the first half of the year was about 7.087 billion yuan.

The industry can still maintain a steady undertone during the adjustment period. This is probably the underlying logic of China's Hongqiao being able to pay big dividends. However, looking forward to the future market at the present time, there are still quite a few highlights of Hongqiao in China.

From an industry perspective, the current increase in the supply of electrolytic aluminum mainly comes from Asia and Europe, but there is uncertainty about the commissioning of some production capacity in Asia, and the European energy problem has not yet been properly resolved, so even from a global perspective, the future supply growth of electrolytic aluminum is expected to be very limited.

In terms of demand, with the continuous expansion of the global real estate market, the gradual increase in sales of new energy vehicles, and the continuous increase in PV installations, the agency expects global electrolytic aluminum consumption to be about 74.454 million tons in 2025, with a corresponding potential gap of 3.574 million tons.

In the context of a mismatch between supply and demand, there is very limited room for electrolytic aluminum prices to decline in the medium to long term, and this also means that investors can basically be optimistic about the performance prospects of related enterprises, including China's Hongqiao.

Also, the Zhitong Finance App noticed that Shandong Hongqiao, a subsidiary of the group, will disclose the three-quarter report in the near future, which is particularly worth looking forward to. Since the second half of the year, aluminum prices have bottomed out and rebounded. Data shows that in September, the average spot price of aluminum ingots reached 1,540 yuan/ton, an increase of more than 10% from the low point during the year.

On the cost side, by March of this year, the company's high-priced inventory had been exhausted, and at the same time, the purchase prices of coal and pre-baked anodes continued to drop. According to research and estimates by the Mysteel Aluminum research team, the weighted average complete cost of the domestic electrolytic aluminum industry in September was 15,845 yuan/ton, and the cost increase was lower than the increase in aluminum prices.

Given the steady recovery in aluminum prices and the effective reduction in costs, it can be expected that China's Hongqiao profit will continue to rise in the third quarter. According to information, at the beginning of June, the company's net profit per ton of aluminum was in the range of 1,200-1,300 yuan, but by September, the profit of the entire electrolytic aluminum industry had increased 28% month-on-month to 3,695 yuan/ton, and the net profit per ton of aluminum had increased dramatically.

In a nutshell, China's Hongqiao fundamentals are stable. At the same time, thanks to rising aluminum prices and reduced cost pressure, the company's future market performance is elastic. However, the characteristics of high dividends also give China Hongqiao, which is a cyclical stock, a strong margin of safety. Considering that it is now less than a month until China Hongqiao distributes interim dividends and special dividends, investors may wish to take advantage of this time window to “grab power” ahead of time. After all, even when comparing utility stocks famous for their high dividend rates, China Hongqiao's dividend rate of over 7% is still quite competitive. Not to mention that the company also has outstanding growth flexibility, and the allocation value is self-evident.