2025 results slightly miss our forecast Huafon Aluminuium announced its 2025 results: Revenue rose 14.8% YoY to Rmb12.49bn, and net profit attributable to shareholders fell 1.3% YoY to Rmb1.20bn. In 4Q25, revenue 5.6% YoY to Rmb3.38mn, and net profit attributable to shareholders drop 12.6% YoY to Rmb306mn, slightly missing our expectations.

Earnings declined due to falling comprehensive processing fees and rising costs. In 2025, the company's gross margin fell 2.5ppt YoY to 13.4%, and we estimate that the processing fee per tonne of aluminum materials fell 12% YoY to Rmb5,803/t in 2025. The decline in processing fee is mainly due to the cancellation of export tax rebates, international trade protection, and fiercer market competition. Structurally, the proportion of overseas sales declined from 31% in 2024 to 27% in 2025. We estimate that the firm's production cost per tonne of aluminum products rose 1.2% YoY to Rmb20,900/t in 2025 due to insufficient capacity of the existing hot-rolled process. We expect the cost of hot-rolled products to be brought under control as the Phase II project in Chongqing ramps up.

Rising sales volume partially offset the negative impact from falling gross margin. In 2025, the firm's sales volume of aluminum products increased 12.5% YoY to 487,834t, mainly driven by rising capacity utilization rate of existing products.

Trends to watch

Phase II project in Chongqing ramping up soon; demand for aluminum heat transfer materials has large growth potential. The firm has a total production capacity of 500,000t/yr of finished aluminum products. It expects the Phase II project to complete the installation and commissioning of hotrolling units by mid-2026. Upon completion, the project will effectively address the bottleneck of the firm's existing production lines, increase its total production capacity to more than 800,000t/yr, and reduce overall costs. In the long term, we see large upside in incremental demand for aluminum heat transfer materials. First, the replacement of copper with aluminum in the air conditioner industry is accelerating, driven by cost pressure and industry coordination. China has released relevant standards and self-regulation conventions. Second, liquid cooling in data centers may gradually replace traditional air cooling, construction of AI computing power infrastructure boosts consumption of aluminum heat dissipation modules and liquid-cooling structural parts, and demand for aluminum liquid-cooling plates has large growth potential thanks to their advantages in performance and cost

Financials and valuation Due to intensifying competition, we lower our 2026 attributable net profit forecast 5.4% to Rmb1.55bn, and introduce 2027 attributable net profit forecast of Rmb1.85bn.The stock is trading at 12.2x 2026e and 10.2x 2027e P/E. We maintain an OUTPERFORM rating and target price of Rmb21.24, implying 13.7x 2026e and 11.5x 2027e P/E, offering 12.5% upside.

Risks Fiercer competition weighs on processing fees; downstream demand disappoints; international trade friction escalates.