J.P. Morgan: Chalco’s third-quarter profit rises year on year, while weaker aluminium prices compress profit quarter on quarter

Why did profit fall quarter on quarter despite beating expectations?

Chalco’s third-quarter core net profit was RMB 5.91 billion, up 57% year on year but down 7% quarter on quarter; net profit attributable to shareholders was RMB 6.04 billion, up 59% year on year and down 5% quarter on quarter. JPMorgan believes the results were slightly ahead of expectations.
Aluminium prices weakened in the third quarter, while alumina prices were relatively stable. The company’s gross margin fell to 25.2%, down 1.1 percentage points quarter on quarter, although it remained 7.6 percentage points higher than a year earlier.
Net profit attributable to shareholders for the first nine months was RMB 17.92 billion, up 65% year on year and equivalent to 83% of Bloomberg’s full-year consensus estimate for 2026. JPMorgan expects the full-year consensus earnings estimate to be raised.

Third-quarter external sales of self-produced primary aluminium and alloys were 2.08 million tonnes, up 2% both year on year and quarter on quarter. JPMorgan believes volume growth cushioned the impact of lower margins on earnings.
External sales of self-produced metallurgical-grade alumina were 1.36 million tonnes, rebounding 18% quarter on quarter but remaining 14% below the year-earlier level, which they have yet to regain.

Third-quarter operating cash flow was RMB 14.73 billion, up 32% year on year and down 4% quarter on quarter; free cash flow was RMB 13.77 billion, up 53% year on year and 4% quarter on quarter.
At the end of the third quarter, net debt had fallen to RMB 9.6 billion from RMB 15.63 billion at the end of the second quarter, and the net gearing ratio had declined to 7% from 11%. Increased cash and reduced short-term debt together improved the balance sheet.

JPMorgan expects strong margins and cash flow to continue in the fourth quarter of 2026, but faster-than-expected restarts at Middle Eastern aluminium smelters, increased production in China and capacity ramp-ups in Indonesia could depress aluminium prices in 2027–2028.
The bank also notes that weaker-than-expected demand could weigh on aluminium prices, while higher-than-expected electricity and coal prices would also create pressure; a faster recovery in construction and transport activity and slower aluminium capacity expansion are potential positive catalysts.
JPMorgan maintains Overweight ratings on the A-shares and H-shares, with target prices for December 2027 of RMB 13 and HK$ 12, respectively. The bank believes the valuation could rise further if the company improves capital management and increases shareholder returns.