J.P. Morgan Chase released a research report and first gave China Hongqiao a “buy” rating, gave it a target price of HK$13.2, and listed it as a “preferred stock”.
The Zhitong Finance App learned that J.P. Morgan Chase released a research report and first gave China Hongqiao (01378) a “buy” rating, gave it a target price of HK$13.2, and listed it as a “preferred stock”. Xiaomo pointed out that this is due to the company's low valuation, and that its subsidiaries may be listed on A-shares. Second, Komo is also optimistic about the performance of aluminum and related stocks in 2024.
Xiaomo is expected to experience three favorable factors: 1) tightening supply/demand will support the rise in aluminum prices; 2) falling coal prices/higher hydropower adoption rates will support the decline in electricity costs; 3) increased dividend payments will drive the stock price. As a result, Komo pointed out that the company's net market ratio of 0.8 times is not high, lower than that of global aluminum peers, which provides an attractive risk-reward ratio.
Komo said that aluminum is one of the commodities he is optimistic about. J.P. Morgan commodities research predicts that the gap between aluminum supply and demand will reach 453,000 tons by 2025. This lays the foundation for a constructive price outlook. Based on the forward curve, Xiaomo predicts that the price in 2025 will be 7% higher than the spot price, reaching $2,584. Furthermore, Xiaomo wrote that China's aluminum demand added an upward risk to its 2% growth forecast — demand for new energy vehicles, power grids, and solar energy was stronger than expected, and manufacturing demand provided additional upward potential.
Xiaomo also pointed out that aluminum manufacturers have higher dividends and healthier profit margins. The investment bank expects the profit margin of aluminum producers to double in the first quarter of '24 compared to the first quarter of '23 to reach around RMB 2,500 due to the continued drop in coal prices. Considering 25% hydropower exposure, if the rainy season arrives in May as expected, this will increase the possibility of further energy cost savings in the second and third quarters of '24. The continued increase in profitability poses an upward risk to dividends.
Furthermore, Komo believes that the bull market is not fully reflected in stock prices — the market only digested better-than-expected results for FY23, and the strong prospects for sustainable aluminum prices were not fully priced. Xiaomo valued China's Hongqiao at 1.1 times the net market ratio; it also ranked China Hongqiao as its first choice because its valuation was lower.