China Hongqiao Group Ltd (1378.HK) is the world’s largest aluminum company. The company manufactures aluminum products such as molten aluminum alloy, aluminum alloy ingots, aluminum alloy casting-rolling products and aluminum busbars. [mepr-active membership=”1734″ ifallowed=”show” unauth=”message” unauth_message=”Please login or purchase a membership to view full text.”] China Hongqiao is also engaged in the bauxite trading, financial leasing, environmental protection, and inspection businesses through its subsidiaries. The company was founded in 1994 and has its headquarter in the Shandong Province/China. China Hongqiao is listed on the Main Board of HKEX since March 2011. Shares can also be traded in the US and Germany.
China Hongqiao has recently announced the purchase of two aluminum processing firms for around 1.6bn USD. The acquisitions are part of the company’s strategy to focus on expanding its downstream business and to further strengthen its position in the area of aluminum deep-processing through industrial integration. Despite global overcapacity and deteriorating margins China, Hongqiao plans to raise its annual capacity by 16% to 6m tons this year by investing 15bn RMB (2.3bn USD). The company is aiming to gain further market shares and to force cash negative competitors out of the market. Driven by policies like the “13th Five-Year Plan” and the “One Belt, One Road” initiatives, the demand for aluminum in China is stronger than in the rest of the world. Major contributors to this demand include housing construction, consumer electronics, transportation, food and pharmaceutical packaging.
With a staff of more than 58 thousand employees, the company reported revenues of 25.4bn RMB (3.7bn USD) and a profit before tax of 4.5bn RMB (646m USD) for the first six months of this year. An increase of 13% and 13.5% respectively compared to the same period a year ago. In 2015 revenues grew by 22 % while profit dropped by 28% on a year-to-year basis. The company had 12.6bn RMB (1.8bn USD) in cash by the end of June, an increase of almost 50% due to strong cash flow since beginning of this year. Nevertheless, the gearing ratio remains high with liabilities exceeding equity by more than three times.
China Hongqiao shares are in an uptrend since September 2015 and gained almost 60% since the beginning of this year. Old highs at 8 HKD are nearby. The company is currently priced at only ten times its earning, well below industry average. 8 out of 10 covering analysts rate the shares now as outperform or buy. The company benefits from rising aluminum prices, its large scale operations, and a competitive cost structure. Nevertheless, the company’s high debt level is a risk in times of rising interest rates.
AIS Rating: ★★★★☆
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 H1 only |
|
|---|---|---|---|---|---|---|
| EPS (RMBcents) | 1.03 | 0.92 | 0.91 | 0.88 | 0.58 | 0.46 |
| Change | 23% | -11% | -1% | -3% | -34% | 7% |
| P/E | P/E SECTOR |
P/B | P/CF | Equity Ratio* |
ROE | Debt/ Equity** |
Div YLD |
|---|---|---|---|---|---|---|---|
| 10 | 17 | 1 | 5 | 32% | 11% | 209% | 2.1% |
* Equity / Total Assets, ** Total Liabilities / Equity
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