1Q25 results in line with market expectationsAluminum Corporation of China (Chalco) announced its 1Q25 results: Revenue rose 13.95% YoY and fell 11.86% QoQ to Rmb55.78bn; net profit attributable to shareholders grew 58.62% YoY and 4.56% QoQ to Rmb3,538mn; recurring net profit increased 57.78% YoY and 5.53% QoQ, to Rmb3,444mn, in line with market expectations.

Sales volume and prices of alumina and electrolytic aluminum rose YoY; alumina prices dropped QoQ. In 1Q25, the firm's primary aluminum output rose 8.99% YoY to 1.94mnt. Output of metallurgical-grade alumina rose 5.41% YoY to 4.48mnt, and sales increased 12.00% YoY to 1.68mnt. In 1Q25, aluminum prices rose 7.34% YoY and fell 0.44% QoQ, and alumina prices rose 12.69% YoY and dropped 28.61% QoQ.

Asset structure improved; dividend payout ratio rose to 30%. The firm's debt ratio hit a 10-year low of 48.1% in 2024 (-5.2ppt YoY) and fell further to 47.9% in 1Q25. Dividend payout ratio rose 9.6ppt YoY to 30% in 2024, and we expect the trend to continue in 2025.

Trends to watch

Accelerating the exploration and development of bauxite resources at home and abroad. Domestically, the firm plans to step up exploration of mineral resources, participate in the transfer of mineral rights in provinces with bauxite resources, and start construction of bauxite expansion projects in Shanxi and Guizhou. Overseas, the firm currently has 2.1bn tonnes of bauxite resources in the Republic of Guinea, and plans to continue to build a stope for the Boffa bauxite mine. The company has stepped up efforts to acquire bauxite resources in Africa and Southeast Asia to boost sustainable development.

Optimizing industrial presence and promoting industrial upgrading. According to corporate filings, the company plans to continue to accelerate the commissioning of the 2mnt/yr Guangxi Huasheng Phase II alumina project and expand its presence in the processed alumina market. As for the alternative energy business, it plans to put the 1,200MW source-grid-load storage project in Baotou (Inner Mongolia) into operation in 2025, and implement the wind power upgrade and distributed photovoltaic (PV) project at Ningxia Energy.

Supply and demand imbalance in electrolytic aluminum industry; aluminum prices to rise further. We believe that global aluminum expansion is slowing systemically. Although geopolitical conflicts may disrupt demand in the near term, we expect demand from new energy sources and new regions to continue driving up aluminum prices. As a global leading aluminum company, Chalco has established a solid presence in the integrated value chain.

Financials and valuation

Given falling alumina prices, we lower our 2025 net profit forecast 8% to Rmb13.7bn, and introduce 2026 net profit forecast of Rmb13.9bn. A-shares are trading at 8.1x 2025e and 8.0x 2026e P/E. H-shares are trading at 5.0x and 4.9x 2025e and 2026e P/E. Considering earnings forecast revisions, we maintain NEUTRAL for A-shares and cut our TP 8% to Rmb7.64, implying 9.6x 2025e and 9.4x 2026e P/E, offering 18% upside. For H-shares, we maintain a NEUTRAL rating and cut our target price 8% to HK$5.16, implying 6.1x 2025e and 5.9x 2026e P/E, offering 21% upside.

Risks

Disappointing global economic recovery and/or pro-growth policies; sharp fluctuations in product prices.