Results Review

1H26 results in line with our expectations

In 1H26, revenue rose 7.6% YoY to Rmb6.42bn but net profit attributable to shareholders fell 2.3% YoY to Rmb560mn. In 2Q26, revenue rose 12.5% YoY and 15.6% QoQ to Rmb3.44bn, and net profit attributable to shareholders grew 3.4% YoY and 29.5% QoQ to Rmb320mn.

Trends to watch

A near-term supply bottleneck in hot-rolled capacity has pushed up input costs, though high-end products have helped stabilize gross margins. In 1H26, revenue rose 7.6% YoY to Rmb6.42bn, driven primarily by price increases. The domestic average price of aluminum rose 18.8% YoY to Rmb24,100/t.

Gross margin increased 0.71ppt YoY to 14.3% in 1H26. In 2Q26, gross margin was flat QoQ at 14.3% but rose 0.75ppt YoY. Despite multiple headwinds in the aluminum processing industry—including weak downstream auto demand, the removal of export tax rebates, trade barriers weighing on export sales, and lower processing fees amid intense competition—the firm’s gross margin has shown signs of stabilization. This reflects structural support from high-end products, which have helped sustain processing fees. The firm focuses on valueadded products such as high-strength thin-gauge water-cooling plates and embedded flux materials, and key project orders remain robust.

Breakthroughs in construction of Phase II project in Chongqing; demand for aluminum heat transfer materials to grow. The hot continuous rolling mill—the centerpiece of the Chongqing Phase II project—was successfully commissioned on June 24. The firm plans to accelerate the construction, commissioning, and acceptance testing of downstream cold rolling and supporting equipment. According to corporate filings, this project will add 150,000t of high-end finished product capacity and 300,000t of hot-rolled billet capacity. Resolving the hot-rolling bottleneck and achieving scale should help reduce production costs.

Aluminum heat-transfer materials are poised to benefit from rising demand in emerging applications, including new energy storage systems, liquid cooling for data centers, and aluminumfor- copper substitution in air conditioners. To capture this downstream demand, the firm plans to invest up to Rmb3bn in a 550,000t/yr project producing high-end aluminum sheet, strip, and foil.

Financials and valuation

Due to intensifying competition in the aluminum processing industry, we lower our 2026 and 2027 earnings forecasts by 8.3% and 10.1% to Rmb1.42bn and Rmb1.66bn. The stock is trading at 11.7x 2026e and 10.0x 2027e P/E. Given the longterm demand potential for aluminum heat transfer materials, we maintain an OUTPERFORM rating and a TP of Rmb21.24, implying 15.0x 2026e and 12.8x 2027e P/E, offering a 27.6% upside.

Risks

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