As the industry leader releases its earnings scorecard, capital markets' enthusiasm for the electrolytic aluminum sector appears poised for a resurgence. On the evening of August 21, CHINAHONGQIAO (01378) published its 2026 interim results. The report revealed that the company generated revenue of RMB 87.506 billion in the first half, marking an 8% increase despite a high comparison base, while net profit attributable to shareholders surged 39.2% year-on-year to RMB 17.21 billion. This stellar interim performance is expected to inject fresh momentum for an upward breakout into the aluminum sector, which has been consolidating.

The aluminum sector's trajectory in the first half was not without hurdles. Starting in March, stagflation concerns sparked by Middle East geopolitical conflicts intensified, compounded by the Federal Reserve's hawkish stance that repeatedly delayed rate cut expectations. A stronger US dollar consistently pressured commodity pricing. Meanwhile, global capital increasingly flowed into technology sectors led by AI, and these combined factors triggered a notable pullback in aluminum stocks. In secondary markets, however, the earnings of leading industry players are often regarded as the most reliable benchmark. Through CHINAHONGQIAO's interim report, it becomes evident that this global aluminum titan's fundamentals are consistently delivering robust earnings growth amid a thriving industry landscape.

Earnings Growth Maintains High Elasticity

During the first half of this year, despite the global economy navigating low growth and heightened uncertainty, with geopolitical tensions significantly amplifying disruptions in financial and commodity markets, the global price center for electrolytic aluminum shifted substantially upward. This was driven by supply shortages and steadily increasing demand in the aluminum market. Data shows that the average price of three-month aluminum futures on the London Metal Exchange reached approximately USD 3,357 per tonne (excluding tax), up about 31.9% year-on-year. In the domestic market, China's aluminum consumption remained robust, buoyed by energy storage demand, power infrastructure investment, and expanding downstream aluminum product exports. According to Antaike data, China's primary aluminum output reached 22.34 million tonnes in the first half, up 2.2% year-on-year, while consumption stood at 23.08 million tonnes, a 0.4% increase. Concurrently, the average price of three-month futures on the Shanghai Futures Exchange was RMB 24,413 per tonne (including VAT), rising approximately 20.7% year-on-year.

Navigating a market environment rife with both opportunities and challenges, CHINAHONGQIAO demonstrated robust operational resilience. During the period, the company's sales of aluminum alloy products reached 2.811 million tonnes, with average selling prices climbing 18.7% year-on-year to RMB 21,192 per tonne (excluding VAT, same below). Alumina product sales totaled 6.917 million tonnes, an 8.6% increase, at an average price of RMB 2,327 per tonne. Sales of deep-processed aluminum alloy products hit 444,000 tonnes, at an average price of RMB 23,436 per tonne, representing increases of 23.2% and 13.4%, respectively. Notably, the profitability of its two primary business segments—aluminum alloy products and deep-processed aluminum alloy products—improved significantly, providing a strong lift to the company's overall gross margin. Financial data indicates that revenues from these segments were RMB 59.575 billion and RMB 10.395 billion, accounting for 68.1% and 11.9% of total revenue, respectively. In tandem, gross profits for these segments reached RMB 22.944 billion and RMB 3.399 billion, with gross margins of 38.5% and 32.7%, respectively—up 13.3 percentage points and 9.4 percentage points year-on-year. Consequently, CHINAHONGQIAO's overall gross profit climbed to RMB 27.526 billion in the first half, corresponding to a gross margin of 31.5%, a 5.8 percentage point improvement year-on-year. Net profit attributable to shareholders continued its upward trajectory, surging 39.2% to RMB 17.21 billion.

The sustained surge in CHINAHONGQIAO's profitability is no accident. The underlying logic lies in the company's meticulously constructed, fully integrated industrial chain encompassing mining, alumina, primary aluminum, deep processing and new materials, and recycled aluminum. Upstream, strategic shareholdings in the Guinea Winning Consortium secure a stable supply of low-cost bauxite, with self-sufficiency rates steadily improving. In the alumina segment, a well-distributed production footprint domestically and internationally ensures high self-sufficiency, effectively cushioning the cost impact of raw material price volatility. On the energy front, beyond its self-owned power plants in Shandong, CHINAHONGQIAO is aggressively developing diversified clean renewable energy sources, including hydropower and solar in Yunnan, further enhancing its cost competitiveness. It is this deep integration across the entire value chain that enables CHINAHONGQIAO to maintain formidable earnings resilience amid rising raw material and energy costs, shifting overseas resource policies, and market fluctuations.

Definitive Investment Opportunity Under a Tight Supply-Demand Balance

The robust earnings growth in the first half is now an established fact. Looking ahead, the market's key concern is clearly whether this high level of prosperity can be sustained. Judging by the industry's supply-demand dynamics, the answer is unequivocally affirmative. On the supply side, there were earlier market concerns about domestic "overproduction." In the first half, domestic electrolytic aluminum operating capacity reached 45.4 million tonnes, approaching the compliance capacity ceiling. From my perspective, in recent years, as the industry's supply-demand landscape has improved, companies seizing historical opportunities to maximize output during a high-profit cycle is an understandable short-term commercial decision. However, from a long-term viewpoint, the capacity red line cannot truly be breached. Reports have already surfaced of central environmental inspections targeting electrolytic aluminum overproduction, with several smelters forced to halt operations for violations. Under such rigid constraints, overproduction is fundamentally unsustainable over the long term. Overseas, Middle East geopolitical conflicts have inflicted substantial damage on global aluminum supply. Industry projections suggest that a full recovery of capacity in the region could take up to 18 months. In 2026, due to halted production in the Middle East, global aluminum output is expected to decline slightly year-on-year. Some institutions estimate that, considering uncertainties in overseas project timelines, global aluminum supply growth will likely remain below 2% over the next five years.

Turning to the demand side, aluminum, with its unique material properties, boasts a wide array of applications across the national economy. As a structural material, aluminum's density is just one-third that of steel, yet it offers commendable strength and exceptional corrosion resistance. As a functional material, while its conductivity is inferior to copper, its density is only one-third of copper's and its price is just one-quarter, presenting a compelling overall cost-performance advantage. Aluminum's downstream demand is highly diversified, making it less susceptible to fluctuations in any single sector. Over the past 15 years, global primary aluminum demand has grown at a compound annual growth rate of 4.1%, with overall demand fluctuating steadily in line with broader economic conditions. In recent years, emerging industries such as photovoltaics and new energy vehicles, along with aluminum product exports, are contributing substantial new increments. Estimates indicate that photovoltaic aluminum profile output is projected to rise from 1.42 million tonnes in 2020 to 4.05 million tonnes in 2025, while new energy vehicle aluminum profiles grow from 330,000 tonnes to 1.8 million tonnes. Additionally, emerging areas like energy storage and grid investment are rapidly adding to demand. This clear structural growth trend provides solid support for aluminum prices maintaining elevated levels over the long term.

Within this tightly balanced industry landscape, CHINAHONGQIAO stands out as a high-quality asset offering both industry beta and company-specific alpha. On one hand, as the global leader in electrolytic aluminum, it is poised to fully benefit from profit elasticity driven by rising prices over the long term. On the other, its fully integrated industrial chain has forged a deep cost moat, and these multiple barriers enable it to consistently outperform peers in profitability even amid industry volatility. Equally commendable is CHINAHONGQIAO's unwavering commitment to shareholder returns alongside robust earnings growth. In the first half of this year alone, the company spent over HKD 5.2 billion on share buybacks and completed cancellations, continuously optimizing its capital structure, effectively boosting earnings per share, and thereby enhancing long-term returns for all shareholders. From an investment perspective, this interim report's significance extends far beyond a mere financial statement. While the market currently gravitates toward tech assets under grand narratives, CHINAHONGQIAO's performance serves as a timely reminder: amidst the noise, high-quality assets with clear industrial logic, solid earnings support, and a consistent track record of rewarding shareholders with real capital deserve long-term attention. At present, the cyclical volatility of electrolytic aluminum is being smoothed by the tight supply-demand balance, and the market structure is becoming increasingly certain. As the global aluminum industry leader, combining earnings elasticity with growth certainty, and reinforced by integrated cost advantages and high shareholder returns, CHINAHONGQIAO is undoubtedly a prime candidate for inclusion as a core holding.