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According to an announcement on January 19, Nanshan Aluminium plans to expand aluminum production capacity in its industrial park in Indonesia.

Currently, the Phase I project with an annual capacity of 250,000 tonnes is under construction. To increase economies of scale, building a competitive edge, and steadily enhance profitability, the company plans to build a 250,000t/y Phase II project through its controlling subsidiary, Nanshan Aluminum International, with an investment of Rmb3.06bn and a construction period of two years. Upon completion, the company's total aluminum production capacity in the Indonesian industrial park will reach 500,000 tonnes per year.

Comments

The firm announced its plan to expand aluminum production capacity in Indonesia; its integrated operations continue to improve. According to the announcement, the company’s 4mnt/yr alumina project in its Indonesian industrial park is fully operational. The company now plans to extend downstream by constructing a 250,000t/y Phase II aluminum production project, bringing the total planned aluminum production capacity to 500,000 tonnes per year. We believe this move could further expand its production scale and strengthen its profitability.

High-end products are ramping up, and their share is rising. In the aluminum processing segment, the company continues to focus on developing high-value-added products, including automotive and aircraft aluminum sheets.

First, the production capacity of automotive aluminum sheets may gradually increase. According to the announcement, the company already has an annual capacity of 200,000 tonnes,and a new 200,000t/y project may gradually ramp up over the next three years.

Second, the mass production of domestic large aircraft is boosting demand for aviation-grade aluminum materials. As announced, the company is a key supplier of raw materials for domestic large aircraft. With the rapid development of China’s aviation industry, we expect the company’s 50,000t aircraft aluminum sheet capacity to continue ramping up, further increasing the proportion of high-end products.

Attaching importance to shareholder returns, showing confidence in growth. According to the announcement, Nanshan Aluminium launched its shareholder return plan for 2024–2026. First, it will annually repurchase and cancel shares using no less than Rmb300mn of its own funds. Second, it plans to distribute dividends exceeding 40% each year. Additionally, the firm’s special shareholder return of Rmb3bn for 2025 reinforces its profile as a dividend stock.

Financials and valuation

We keep our 2025, 2026 and 2027 earnings forecasts unchanged. The stock is trading at 10.2x 2026e and 9.1x 2027e P/E. We maintain an OUTPERFORM rating and target price of Rmb7.25, implying 12.0x 2026e and 10.7x 2027e P/E and offering 18.1% upside.

Risks

Volatility in aluminum prices; disappointing operation of new projects; weaker-than-expected demand recovery.