20260204-招银国际-创新实业-02788.HK-Capacity_growth_in_Saudi_Arabia_+_superb_costadvantage_on_low_green_energy_cost_in_China_19页_972kb

Chuangxin Industries (2788 HK) Summary

Core Content

Chuangxin Industries is a Chinese aluminum and alumina producer, primarily engaged in electrolytic aluminum smelting and alumina refining. The company has a strong position in the industry, with a focus on cost efficiency and capacity expansion, particularly in Saudi Arabia.

Main Points

Capacity Growth and Strategic Expansion

• Chuangxin currently operates 788kt of electrolytic aluminum capacity in Huolinguole, Inner Mongolia, and is expanding its capacity in Saudi Arabia through a Joint Venture (JV) with the Public Investment Fund (PIF).
• The Saudi project, with a targeted capacity of 500kt, is expected to be completed by 2Q27E. This expansion is driven by the capacity cap in China and the low green energy cost in the Middle East.
• The company also has a 1,200kt alumina production capacity in Binzhou, Shandong, with plans to expand to 3,200kt by end-2026E via aluminum hydroxide-based alumina production.

Cost Advantages

• Chuangxin benefits from high electricity self-sufficiency and low electricity costs.
  • Electricity self-sufficiency rate was 87% in 5M25, exceeding the industry average of <60%.
  • Electricity cost was RMB0.33/kWh in 5M25, lower than the industry average of RMB0.40/kWh.
• The company is investing in 1,750MW captive wind and solar power plants, with 640MW completed in Dec 2025.
  • The remaining 1,110MW is expected to be completed in 2026 and operational by 2027.
  • Green power is projected to account for >50% of total power supply by 2027E, with power cost expected to be <RMB0.2/kWh, significantly lower than current coal-fired power costs.

Earnings and Valuation

• The company's adjusted net profit is expected to grow significantly from RMB2,591.9mn in FY24A to RMB4,819.4mn in FY27E.
• Earnings sensitivity analysis shows that a 1% increase in aluminum price could boost earnings by 2.5% in 2026E.
• Chuangxin is initiated with a BUY rating and a target price of HK$32.00, based on a 13x 2026E P/E ratio.
• The company is expected to be included in the Stock Connect program in March 2026, broadening its investor base.

Investment Theme

• Aluminum capacity growth in Saudi Arabia is a key driver of future growth.
• Green energy utilization will further enhance cost advantages and earnings potential.

Key Information

Company Background

• Founded in 2012, listed on the HKEX in Nov 2025.
• Electrolytic aluminum capacity: 788kt (100% stake), alumina refining capacity: 1.2mt (58.5% stake).
• Ranked as the 4th largest electrolytic aluminum producer in North China in 2024 and 12th largest in China.

Capacity Utilization and Growth

• Aluminum production in 2022–2024 was 744.1kt, 757.9kt, and 755.4kt, with stable utilization rates around 95%.
• Alumina production increased from 706.2kt in 2022 to 1,539.9kt in 2024, driven by capacity expansion and high utilization rates.

Cost and Efficiency

• Electricity consumption per ton for aluminum was 13,366 kWh in 2024, lower than the industry average of 13,670 kWh.
• With technological upgrades and green energy adoption, the electricity consumption is expected to drop to 13,290 kWh per ton in 2025.
• Unit gross profit for aluminum is forecasted to rise from RMB4,610/t in 2024 to RMB9,200/t in 2026E, driven by rising aluminum prices, declining bauxite costs, and cost reductions from green energy.

Customers and Sales

• Chuangxin's largest customer is Innovation New Material, a connected entity controlled by the founder Cui Lixin.
• In 2023–2025, the largest customer contributed 78.8%–59.8% of total revenue.
• The company has also expanded its external sales to third-party customers, including aluminum alloy manufacturers and traders.

Suppliers

• Bauxite is sourced from Guinea and Australia at an average price of RMB494–RMB737/t.
• Coal is procured from State Power Investment Corporation and China Energy Investment Corporation at RMB325–RMB495/t.
• Carbon anode costs have declined over time, from RMB5,982/t in 2022 to RMB4,084/t in 5M25.

Financial Highlights

Metric	FY23A	FY24A	FY25E	FY26E	FY27E
Revenue (RMB mn)	13,815	15,163	15,321	19,784	20,091
Adjusted Net Profit (RMB mn)	1,003.6	2,056.3	2,591.9	4,504.1	4,819.4
EPS (Adjusted) (RMB)	0.67	1.37	1.67	2.17	2.32
P/E (x)	33.3	16.2	13.3	10.3	9.6
P/B (x)	11.3	26.6	6.2	3.9	2.8

Investment Outlook

• The BUY rating is based on 13x 2026E P/E, which is ~20% premium over the target multiple for China Hongqiao.
• The target price is HK$32.00, with an up/downside of 28%.
• The company is expected to be included in the Stock Connect program in March 2026, enhancing its accessibility to international investors.

Key Drivers of Growth

• Capacity expansion in Saudi Arabia through the Red Sea JV.
• Green energy utilization to drive cost reductions and earnings growth.
• High utilization rates and increased production capacity in both aluminum and alumina segments.
• Strong demand in the aluminum market due to tight supply and capacity constraints in China and limited overseas additions.

Risk Factors

• Dependence on major customers, including Innovation New Material.
• Regulatory changes affecting green energy or capacity expansion.
• Fluctuations in raw material prices, particularly bauxite and coal.
• Execution risks in the Saudi Arabia project.