1H26 results missed our expectations

Nanshan Aluminium announced its 1H26 results: Revenue rose 7.53% YoY to Rmb18.57bn, and net profit attributable to shareholders fell 14.4% YoY to Rmb2.25bn. The firm’s 1H26 results missed our expectations, mainly dragged by cyclical factors such as falling alumina prices.

Continued to shift toward high-end products; falling alumina prices weighed on earnings. In 1H26, sales volume of high value-added products such as automotive sheets and aviation sheets accounted for 17% of the firm’s total sales volume of aluminum products, and gross profit of high-end products accounted for about 22% of total gross profit of aluminum products.

The earnings decline was mainly due to falling overseas alumina prices (ASP of alumina fell 39.5% in 1H26), and net profit of subsidiary Nanshan Aluminium International fell about Rmb1.4bn YoY, while alumina costs rose YoY, further squeezing profit margin.

Focusing on shareholder returns; interim dividend payout ratio reached 135%. The firm proposed a cash dividend of Rmb2.65 (including tax) for every 10 shares, totaling Rmb3.04bn (including tax), implying an interim dividend payout ratio of 135%, underscoring the firm’s ample cash flow and its determination to reward shareholders.

Trends to watch

Expanding presence in integrated value chain in China; sales volume of high-end aluminum products continues to increase. As an aluminum deep processing company with a presence along the entire value chain, the company focuses on the development of high value-added products such as automotive and aviation sheets. First, the firm has built 200,000t/yr automotive sheet production capacity, and its new 200,000t/yr project will likely come online in the next three years. Second, the firm’s 50,000t aviation sheets production capacity may continue to ramp up along with the development of the domestic aviation industry. Third, the firm is tapping into the market for aluminum materials used in semiconductors and promoting the verification of test materials, which we believe may become a new growth driver.

Plans to expand electrolytic aluminum production capacity in Indonesia to build an overseas production base. The firm is building aluminum production capacity of 250,000t/yr for the Phase I project of its Indonesia base. It announced in 1H26 that its subsidiary Nanshan Aluminium International started construction of Phase II aluminum production facilities with an annual production capacity of 250,000t, with another 500,000t/yr of planned aluminum capacity, bringing the total planned annual production capacity to 1mnt.

Financials and valuation

Given falling product prices, we cut our 2026 and 2027 earnings forecasts 36% and 28% to Rmb4.78bn and Rmb6.00bn. The stock is trading at 11.5x 2026e and 9.2x 2027e P/E. Considering the valuation decline caused by falling prices, we maintain OUTPERFORM and cut our TP 41% to Rmb5.74, implying 13.8x 2026e and 11x 2027e P/E, offering 20% upside.

Risks

Sharp fluctuations in product prices; disappointing project operation; disappointing progress of projects; geopolitical risks i n Indonesia.