1H25 results in line with our expectations

Tianshan Aluminum Group announced its 1H25 results: Revenue rose 11.19% YoY to Rmb15.33bn and attributable net profit grew 0.51% YoY to Rmb2.08bn. In 2Q25, revenue rose 6.37% YoY and fell 6.59% QoQ to Rmb7.403bn, and attributable net profit dropped 24.2% YoY and 3.03% QoQ to Rmb1.03bn. The firm’s 1H25 results are in line with our expectations.

Sales volume and prices of major products both increased; production costs ramped up in the short term. In 1H25, the firm's electrolytic aluminum output stood at 585,400t (largely flat YoY), with sales volume increasing 2% YoY. Its alumina output rose 10% YoY to around 1.2mnt, with sales volume growing 7% YoY. In 1H25, the ASP of the firm's electrolytic aluminum rose 3% YoY to Rmb20,250/t and the ASP of alumina rose 6% YoY to about Rmb3,700/t. The firm's electrolytic aluminum production cost rose 2% YoY and alumina production cost rose 18% YoY, mainly due to higher bauxite procurement cost in 1H25.

Asset structure continued to improve; net operating cash flow increased notably. The firm continued to reduce interest-bearing liabilities, with financial expenses down 32.63% YoY and liability-to-asset ratio down 3.21ppt from end-2024 to 49.53%. Net operating cash flow rose 47.09% YoY to Rmb3.28bn, hitting a record high.

Trends to watch

The firm continues to strengthen integrated presence in upstream and downstream sectors to enhance cost advantage. It continues to strengthen self-owned mines’ supply capability. According to corporate filings, its bauxite project in Guinea has entered the production phase, with ores being shipped back to China. The bauxite mine in Guangxi has obtained a mining license and commenced substantial extraction operations. Its detailed exploration is underway for the bauxite deposit in Indonesia, and mining will likely start in 2025.

In the midstream sector, the firm has started the construction of an electrolytic aluminum capacity expansion project (planning to expand capacity to 1.4mnt/yr). Additionally, the 2mnt/yr alumina project in　Indonesia passed the environmental assessment in early 2025, and preparatory work is currently in progress.

In terms of downstream processing, the firm plans to complete equipment installation, commissioning, and capacity ramp-up for its Phase I 160,000t/yr aluminum foil project by 2025.

Focusing on shareholder returns; the firm not only pay dividends but also repurchase shares. According to corporate filings, the firm has released its shareholder return plan for 2025-2027, with an annual dividend payout ratio of at least 30%. The firm is also implementing share repurchases. It plans to repurchase 0.43-0.64% of its share capital. As of July 31, it has repurchased 17.56mn shares, accounting for 0.38% of the share capital. The firm plans to use all funds to implement its employee stock ownership plan or equity incentive plan.

Financials and valuation

Given rising product prices, we raise our 2025 and 2026 net profit forecasts 10% and 14% to Rmb4.45bn and Rmb5.15bn. The stock is trading at 10.2x 2025e and 8.8x 2026e P/E. We maintain an OUTPERFORM rating and raise our target price 28% to Rmb12.24, considering earnings forecast revisions and improving risk appetite in the market. Our target price implies 13x 2025e and 11x 2026e P/E with 25% upside.

Risks

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