3Q26 earnings in line; expect weaker 4Q26

Chalco’s earnings dropped 5% QoQ to about RMB6bn, in line with our forecast. The decline in unit gross profit of primary aluminum was the key driver for the sequential decline in profit. We expect its earnings to drop another 24% QoQ in 4Q26 on continued softening of primary aluminium price and the likely booking of more costs. We reiterate our BUY call as its H shares offer attractive dividend yield of 8.4-10.0% in 2026-28E.

Key Factors for Rating

As stated in our preview, the average Shanghai Changjiang spot aluminium price in China eased 2% QoQ to about RMB23,700/tonne in 3Q26. Based on our estimation, this should result in a 6% QoQ contraction in unit gross profit for primary aluminium. This is the key driver for the small sequential decline in earnings.

In terms of output, the company’s alumina output surged 13% QoQ to 5.04m tonnes in 3Q26, 12% above our forecast. The increase in its bauxite production supported it to ramp up output of alumina. Its primary aluminium output grew 2% QoQ to 2.06m tonnes, in line with our forecast.

We expect its earnings to drop 24% QoQ in 4Q26. The price of primary aluminum should continue to soften in 4Q26 as the normalisation from the high price in 2Q26 continues. It is also likely for the company to book more costs in 4Q of a year. Our current forecasts do not assume any significant impairment in the quarter.

With a much improved balance sheet and strong free cashflow (annual free cashflow estimated to be RMB33-34bn in 2026-28), the company intends to reward shareholders through dividend with payout to increase over time. We current assume its dividend payout ratio from 37% in 2025 to 45% in 2026-28. This translates into attractive dividend yield of 8.4-10.0% in 2026-28E.

Key Risks for Rating

Faster than expected fall in aluminium prices.

Higher-than-expected raw material and energy costs.

Valuation

We leave our earnings forecasts and target price unchanged (HK$10.46). Our target valuation remains average 2026-28E dividend yield of 6.1%.