Core Insights - The report highlights that the electricity reform continues to deepen, and the green methanol market is on the rise [1][3] - In 2025, coal prices remained low, benefiting thermal power companies, while hydropower and nuclear power sectors showed stable operations [4][6] - The report emphasizes the investment potential in various segments of the utility industry, including thermal, hydropower, nuclear, and green energy [4][6] Thermal Power - The comprehensive electricity price for thermal power is expected to remain stable, enhancing the sector's profitability [6] - Coal prices are projected to maintain a low and fluctuating trend in 2026, with improvements in revenue structure due to rising capacity prices [6][53] - The report suggests focusing on regions with smaller electricity price reductions and companies with nationwide layouts to capture stable profits [57][63] Hydropower - The report indicates that large hydropower projects have significant dividend value, especially under low-interest conditions [78] - The construction of hydropower stations in the Lancang and Yarlung Tsangpo rivers is expected to enhance operational flexibility and profitability [75][79] Nuclear Power - The approval of new nuclear power units has become normalized, with a significant number of units under construction and planned for future operation [82][87] - The report notes that the marketization of nuclear power is increasing, with a growing proportion of market transactions [90][93] Green Energy - The report discusses the recovery of green energy installations and the impact of electricity reform on investment value [4][6] - The demand for green methanol is expected to surge due to the International Maritime Organization's (IMO) net-zero framework, which aims for significant emissions reductions by 2050 [105][114] - The report highlights the strong demand for green methanol, with a projected annual demand of approximately 1,107.3 million tons from newly adopted methanol-fueled vessels [115] Waste Incineration - The waste incineration sector is entering a mature phase, with an increase in cash flow and potential for higher dividend payouts [116][121] - The report notes that several companies have committed to long-term dividend plans, indicating a positive outlook for returns [121][124] - The expansion into Southeast Asia is highlighted as a growth opportunity for waste incineration companies [124]

Investment Rating - The report indicates a shift in AI investment from FOMO CapEx to ROI CapEx, suggesting a more cautious and strategic approach to capital expenditures in the AI sector [4]. Core Insights - Overseas AI investments are facing cash flow pressures, prompting tech giants to seek various data center construction methods and financing solutions to alleviate these pressures. The IPO process for AI unicorns is expected to accelerate [4]. - The focus on maximizing token output efficiency per watt in data centers is becoming critical due to power capacity limitations. Companies are optimizing hardware and software to enhance computational efficiency [4]. - The engineering capabilities of large AI models are improving, with a stronger emphasis on commercializing AI products through various business models such as subscriptions, APIs, and advertising [4]. - The growth of AI cloud services is anticipated to accelerate as capacity is released, with significant orders expected in 2025 [4]. Capital Expenditure Rhythm - Capital expenditure expectations are being raised, with cash flow pressures increasing in the future [5]. - The AI infrastructure paradigm is shifting, with capital expenditures continuing to expand as companies transition from CPU to GPU-based workloads [10][12]. Data Center Construction - Data centers are facing power capacity limitations, leading to a focus on maximizing output efficiency per watt [6]. - The construction of data centers is increasingly flexible to accommodate various generations of GPUs and other components [4]. Model Capability Evolution - The evolution of AI models is expected to continue, with advancements in long text processing, multi-modal capabilities, and logical reasoning [7]. - The commercial viability of AI products is expected to increase as engineering capabilities improve [4]. AI Cloud Business Growth - The AI cloud service sector is entering an expansion phase, with significant orders expected and a rapid increase in contract values [8]. - The release of computational capacity is projected to drive accelerated growth in AI cloud services [4]. Capital Expenditure Cash Flow Statement - The capital expenditure of major tech companies is growing rapidly, leading to increased pressure on free cash flow [20][21]. - The ratio of capital expenditure to operating cash flow is at historically high levels, indicating sustained investment despite cash flow pressures [21]. Capital Expenditure Balance Sheet - The fixed asset scale of major tech companies is steadily increasing, with operating lease liabilities showing slight growth [26]. - The ratio of operating lease assets to fixed assets indicates a preference for self-built data centers over leasing [26]. Capital Expenditure Income Statement - Depreciation and amortization expenses are increasing, putting pressure on profit margins [30]. - The proportion of depreciation to revenue is at its highest level since early 2020, indicating rising costs associated with infrastructure investments [31]. Capital Expenditure Financing Needs - Tech companies are increasingly turning to debt financing to manage cash flow pressures resulting from high capital expenditures [36]. - Major tech firms have issued significant amounts of debt to support AI infrastructure investments, indicating a shift from cash investments to debt financing [36][38].

Core Insights - The home appliance industry is expected to remain in a recovery phase in 2026 due to high base effects and pre-consumed demand, but it also faces a new normal influenced by national subsidies and tariff policies [7][9] - The domestic demand is anticipated to experience a turning point in the second half of 2026, despite being impacted by earlier demand exhaustion [6][9] - Export-oriented appliance companies are likely to see valuation recovery and improved performance due to low base effects from 2025 [6][9] Review of 2025 - The Shenyin Wanguo Home Appliance Index rose by 9.1% in 2025, ranking 24th among all industries, but underperformed the broader market in the second half due to declining domestic subsidies and uncertainties in export tariffs [4][17] - The domestic demand for home appliances is expected to require a longer recovery period due to the exhaustion of demand and changes in consumer habits [4][6] - The home appliance industry faced a weak overall fundamental performance in the second half of 2025, with leading white goods companies showing dividend attributes but lacking investor interest due to market competition and rising costs [4][6] Outlook for 2026 - The supply side of the home appliance industry is expected to remain stable, but increased overseas production capacity may lead to domestic overcapacity under weak demand assumptions [6][9] - Cost pressures are anticipated to gradually increase in 2026, particularly for leading companies that possess better pricing power [6][9] - The home appliance industry is projected to experience a consolidation of market structure, with weaker brands and OEMs likely to exit the market [6][9] Investment Themes - Focus on leading companies with high dividend yields and strong fundamentals, as they are better positioned to withstand industry challenges [9] - Attention to companies expanding overseas, as they adapt to tariff changes and enhance their global manufacturing and R&D capabilities [11] - Consideration of consumer upgrades and innovative product categories, as the demand for home appliances continues to evolve [13] Key Recommendations - The report suggests monitoring leading home appliance companies that demonstrate high cost-performance ratios and increasing dividend rates, especially as public funds show a growing preference for high-dividend sectors [9] - Emphasis on the potential of export-oriented companies that are becoming desensitized to tariff impacts and are expected to benefit from improved operational efficiencies [11] - Recognition of the long-term trend of consumer upgrades, with a focus on innovative categories that enhance lifestyle quality [13]

Group 1: Economic Framework - The concept of "new economy" emphasizes technology and intellectual property, first introduced in China's 2016 government work report, advocating for the development of high-tech industries and modern services[3] - The Solow model suggests that long-term per capita output growth is driven solely by exogenous technological progress, while endogenous growth theory posits that knowledge and innovation can lead to sustained internal growth[3][14] Group 2: Empirical Evidence - A multiple linear regression model using quarterly data from September 2016 to September 2025 indicates that technological innovation, digital economy, and high-quality openness significantly drive industrial upgrading[3][33] - The model's R-squared value is 0.8181, indicating a high degree of fit, with significant F-statistics (F=28.78, p=0.0000) confirming the joint significance of the explanatory variables[38][46] Group 3: Core Mechanisms - The core mechanisms of industrial upgrading include technological integration, factor innovation, and organizational change, with "creative destruction" facilitating structural optimization through new technologies and industries[3][49] - The importance of new production factors such as knowledge, data, and computing power is increasing, leading to transformations in traditional factors like labor and capital[3][49] Group 4: Empowerment Pathways - High-end, intelligent, green, and global pathways are identified as key empowerment routes for industrial upgrading, with high-tech manufacturing and equipment manufacturing showing strong growth, maintaining over 6% year-on-year growth since 2024[3][49] - The digital economy is projected to see data transaction volumes exceed 160 billion yuan in 2024, with a year-on-year growth of over 30%[3][49] Group 5: International Comparisons - The report draws lessons from the U.S. "technology-industry-finance" collaborative system, Germany's "Industry 4.0" concept, and Japan's lean manufacturing model, emphasizing the importance of small and medium enterprises and continuous R&D investment[3][49]

Core Insights - The aviation sector is expected to see profit recovery driven by favorable exchange rates and declining international oil prices, which will alleviate fuel cost pressures for airlines. Structural growth in air travel demand is anticipated due to economic growth, with key recommendations including Southern Airlines, Spring Airlines, and Huaxia Airlines [4][19][22]. - The highway industry in China has entered a mature phase, with future trends expected to include renovation and expansion, mergers and acquisitions, and business diversification. A key recommendation is Zhongyuan Expressway [4][58]. - The shipping industry is transitioning towards green methanol as a mainstream choice for zero-emission energy, with significant growth in renewable methanol projects expected by 2030. Recommended companies include CIMC Enric and COSCO Shipping International [4][89]. - The dry bulk shipping sector is witnessing structural growth due to increased transportation distances for iron ore imports and strong demand for alumina imports. Recommended companies include China Merchants Energy Shipping and Haitong Development [4]. Aviation Sector - The recovery in airline profits is supported by a favorable exchange rate and lower oil prices, with the potential for ticket prices to rise as demand increases [4][22]. - Domestic airlines are facing limited capacity expansion due to engine supply issues, while the demand for air travel is expected to grow structurally [25][31]. - The average fuel price decline is projected to reduce operational costs significantly for airlines, enhancing profitability [24][22]. - The domestic air travel market is expected to grow as the per capita flight frequency in China remains lower than the global average, indicating room for growth [34][35]. Highway Sector - The highway industry is projected to see a slowdown in construction investment, with new regulations potentially extending toll periods for aging highways [4][64]. - The total length of highways in China has surpassed that of the United States, with ongoing investments expected to enhance the network further [63][58]. - The introduction of new toll regulations may provide a framework for sustainable development in the highway sector [67][68]. Shipping Sector - The global shipping industry is increasingly adopting green methanol technology, with a significant number of renewable methanol projects expected to come online by 2030 [4][89]. - The demand for dry bulk shipping is expected to grow due to changes in iron ore import sources and increased distances, presenting opportunities for shipping companies [4].

Domestic Developments - The People's Bank of China (PBOC) maintains a "moderately loose" monetary policy for 2026, focusing on precision and coordination to support economic growth and structural transformation[10] - The Ministry of Industry and Information Technology (MIIT) has launched an action plan for the integration of industrial internet and artificial intelligence, marking a new phase in industrial intelligence development[12] - A green consumption promotion plan was issued, aiming to stimulate domestic demand and support the transition to a circular economy[9] International Developments - The U.S. ISM Manufacturing PMI fell to 47.9 in December, marking the largest contraction since 2024, with inventory reduction being a major drag[18] - The Eurozone's harmonized CPI fell to 2% in December, indicating a return to target levels, while core inflation remains resilient[20] - The U.S. has initiated a global sale of Venezuelan oil, which may disrupt global energy trade and escalate geopolitical tensions[22] Market Trends - Brent crude oil prices increased by 0.94% week-on-week, while iron ore and copper prices rose by 1.88% and 3.60%, respectively[24] - Domestic real estate sales saw a significant decline of 62% week-on-week, indicating ongoing challenges in the sector[24] - The DXI index for storage DRAM prices rose by 7.45% week-on-week, reflecting positive trends in emerging industries[33]

Core Insights - The report emphasizes the importance of capitalizing on emotional consumption trends and reassessing cyclical value in the light of the 2026 investment strategy for the light industry sector [1][3]. 2025 Sector Review - In 2025, the light industry sector experienced relatively flat performance, with traditional cyclical and manufacturing companies facing valuation pressure. However, packaging and printing sectors benefited from price increases and cross-industry transformations, leading to better stock performance [4]. - The export sector showed some differentiation due to tariff policy disruptions, with companies that had balanced production capacity and strong demand performing better. The personal care sector saw excess returns in the first half of the year but faced valuation digestion in the second half due to intensified e-commerce competition [4][5]. - The report suggests a dual focus for stock selection in 2026: on one hand, to pay attention to undervalued cyclical assets for valuation recovery; on the other hand, to balance the valuation and growth potential of new consumption and export sectors [4]. Stock Selection Strategy - The report recommends four main lines for stock selection: 1. Gradually focus on undervalued cyclical stocks, particularly in the paper sector, which is expected to see price increases driven by seasonal demand and low channel inventory [4]. 2. Maintain a high allocation to export stocks with strong demand resilience and manufacturing capabilities, especially those less affected by tariffs [4]. 3. Invest in high-quality domestic personal care brands benefiting from product structure optimization and channel expansion [4]. 4. Explore new consumption trends in categories like AI glasses, new tobacco products, pet supplies, and trendy toys, which are expected to see significant growth [4]. Recommended Stocks - The report lists several recommended stocks, including: - Sun Paper Industry (002078.SZ) - Bohui Paper Industry (600966.SZ) - Weigao Medical (300888.SZ) - Baiya Co., Ltd. (003006.SZ) - Nobon Co., Ltd. (603238.SH) - Yiyi Co., Ltd. (001206.SZ) - Mengbaihe (603313.SH) - Gujia Home (603816.SH) [4]. 2025 Sector Performance Data - As of December 31, 2025, the SW light industry manufacturing sector had an overall increase of 20.1%, outperforming the Shanghai Composite Index by 1.7 percentage points. The packaging and printing sector performed particularly well with a 35.4% increase [12]. - The report highlights that the packaging sector benefited from price increases and cross-industry transformations, while the home and entertainment sectors also saw significant gains [12][14]. Export Sector Insights - The report notes that from November 2025, the U.S. reduced tariffs on Chinese imports to 20%, leading to a gradual recovery in orders. The fluctuations in tariff policies had previously caused delays in orders from U.S. buyers [76]. - The report indicates that the export sector is expected to see a return to competitive pricing against ASEAN countries following the tariff adjustments, which may accelerate industry consolidation [76][81]. Personal Care Sector Trends - The personal care sector is experiencing product structure upgrades and channel benefits, with brands focusing on high-demand segments such as oral care and women's hygiene products [31][50]. - The report forecasts that the market for women's hygiene products will reach 1079.6 billion yuan in 2025, with a compound annual growth rate (CAGR) of 3.0% from 2025 to 2029 [50][51]. Baby Care Market Dynamics - The baby care market is projected to grow at a CAGR of 3.1% from 2025 to 2029, with a focus on premiumization and specialized products to counteract declining birth rates [59][66]. - The report highlights that single-child consumption is increasing, which helps mitigate the impact of declining birth rates on the market [69].

Core Insights - The report indicates that the real estate market is in a bottoming phase, with a focus on differentiation among sectors and a core strategy for recovery [1][3] - New home sales are still in a contraction phase, with a year-on-year decline of 7.8% in sales area from January to November 2025, while the decline in new residential sales area is 8.1% [4][7] - The report anticipates that the market will continue to stabilize in 2026, driven by policies aimed at stopping the decline and promoting the construction of quality housing [4][30] Fundamental Analysis - New home sales remain in a contraction zone, with first-tier cities showing relative resilience. From January to November 2025, sales area in first-tier cities decreased by 7.5%, while second and third/fourth-tier cities saw declines of 16.3% and 10.2%, respectively [15][19] - The inventory level remains high, with the average de-stocking cycle for commercial housing at 10.4 months and 6.6 months for residential properties. First-tier cities experience relatively lighter de-stocking pressure [22][23] - The land market is characterized by "volume reduction and quality improvement," with residential land transactions down by 7.3% in area but with an increase in average floor price by 12.3% [40][44] Investment Themes - **Hong Kong Residential Market**: There is a recovery in residential transactions, with a 16.2% year-on-year increase in the number of sales contracts from January to November 2025. The private residential price index has risen by 3.4% since March [4][70] - **Commercial Sector**: Policies aimed at boosting consumption have led to a steady recovery in retail sales, with a 3.0% year-on-year increase from January to November 2025. Shopping center foot traffic has stabilized, showing a 14.1% increase in the first half of 2025 [4][5] - **Brokerage Sector**: The pressure to deplete new home inventory has led developers to rely more on brokerage channels, with the proportion of sales expenses attributed to distribution and agency commissions reaching 51.9% in the first half of 2024 [4][19] Market Outlook - The report forecasts that the overall market will continue to bottom out in 2026, with a projected year-on-year decline of 3% in sales area and sales amount [66][67] - New construction and investment are expected to decrease by 10% and 7%, respectively, in 2026, due to reduced land acquisition and weak sales [66][67]

Quantitative Models and Construction Methods 1. Model Name: GAN_GRU - **Model Construction Idea**: The GAN_GRU model combines Generative Adversarial Networks (GAN) for feature generation and Gated Recurrent Unit (GRU) for time-series feature encoding to construct a stock selection factor[4][13][14] - **Model Construction Process**: 1. **GAN Component**: - The generator (G) learns the real data distribution and generates realistic samples from random noise \( z \) (Gaussian or uniform distribution). The generator's loss function is: $$ L_{G} = -\mathbb{E}_{z\sim P_{z}(z)}[\log(D(G(z)))] $$ where \( D(G(z)) \) represents the discriminator's probability of classifying generated data as real[24][25][26] - The discriminator (D) distinguishes real data from generated data. Its loss function is: $$ L_{D} = -\mathbb{E}_{x\sim P_{data}(x)}[\log D(x)] - \mathbb{E}_{z\sim P_{z}(z)}[\log(1-D(G(z)))] $$ where \( D(x) \) is the probability of real data being classified as real, and \( D(G(z)) \) is the probability of generated data being classified as real[27][29][30] - GAN training alternates between optimizing \( G \) and \( D \) until convergence[30] 2. **GRU Component**: - Two GRU layers (GRU(128, 128)) are used to encode time-series features, followed by a Multi-Layer Perceptron (MLP) with layers (256, 64, 64) to predict returns. The final output \( pRet \) is used as the stock selection factor[22] 3. **Feature Input and Processing**: - Input features include 18 price-volume characteristics (e.g., closing price, turnover, etc.) sampled over the past 400 days, with a shape of \( 40 \times 18 \) (40 days of features)[18][19][37] - Features undergo outlier removal, standardization, and cross-sectional normalization[18] 4. **Training Details**: - Training-validation split: 80%-20% - Semi-annual rolling training (June 30 and December 31 each year) - Hyperparameters: batch size equals the number of stocks, Adam optimizer, learning rate \( 1e-4 \), IC loss function, early stopping (10 rounds), max training rounds (50)[18] 5. **Stock Selection**: - Stocks are filtered to exclude ST stocks and those listed for less than six months[18] - **Model Evaluation**: The GAN_GRU model effectively captures price-volume time-series features and demonstrates strong predictive power for stock returns[4][13][22] --- Model Backtesting Results 1. GAN_GRU Model - **IC Mean**: 0.1119*** (2019-2025)[4][41] - **ICIR (non-annualized)**: 0.89[42] - **Turnover Rate**: 0.83X[42] - **Recent IC**: 0.0331*** (December 2025)[4][41] - **1-Year IC Mean**: 0.0669***[4][41] - **Annualized Return**: 37.40%[42] - **Annualized Volatility**: 23.39%[42] - **IR**: 1.60[42] - **Maximum Drawdown**: 27.29%[42] - **Annualized Excess Return**: 22.42%[4][42] --- Quantitative Factors and Construction Methods 1. Factor Name: GAN_GRU Factor - **Factor Construction Idea**: The GAN_GRU factor is derived from the GAN_GRU model, leveraging GAN for price-volume feature generation and GRU for time-series encoding[4][13][14] - **Factor Construction Process**: - The GAN generator processes raw price-volume time-series features (\( Input\_Shape = 40 \times 18 \)) and outputs transformed features with the same shape (\( Input\_Shape = 40 \times 18 \))[37] - The GRU component encodes these features into a predictive factor for stock selection[22] - The factor undergoes industry and market capitalization neutralization and standardization[22] - **Factor Evaluation**: The GAN_GRU factor demonstrates robust performance across various industries and time periods, with significant IC values and excess returns[4][41] --- Factor Backtesting Results 1. GAN_GRU Factor - **IC Mean**: 0.1119*** (2019-2025)[4][41] - **ICIR (non-annualized)**: 0.89[42] - **Turnover Rate**: 0.83X[42] - **Recent IC**: 0.0331*** (December 2025)[4][41] - **1-Year IC Mean**: 0.0669***[4][41] - **Annualized Return**: 37.40%[42] - **Annualized Volatility**: 23.39%[42] - **IR**: 1.60[42] - **Maximum Drawdown**: 27.29%[42] - **Annualized Excess Return**: 22.42%[4][42] 2. Industry-Specific Performance - **Top 5 Industries by Recent IC (October 2025)**: - Social Services: 0.4243*** - Coal: 0.2643*** - Environmental Protection: 0.2262*** - Retail: 0.1888*** - Steel: 0.1812***[4][41][42] - **Top 5 Industries by 1-Year IC Mean**: - Social Services: 0.1303*** - Steel: 0.1154*** - Non-Bank Financials: 0.1157*** - Retail: 0.1067*** - Building Materials: 0.1017***[4][41][42] 3. Industry-Specific Excess Returns - **Top 5 Industries by December 2025 Excess Returns**: - Banking: 4.30% - Real Estate: 3.51% - Environmental Protection: 2.18% - Retail: 1.76% - Machinery: 1.71%[2][45] - **Top 5 Industries by 1-Year Average Excess Returns**: - Banking: 2.12% - Real Estate: 1.93% - Environmental Protection: 1.50% - Retail: 1.46% - Machinery: 1.23%[2][46]

Core Insights - The report indicates that the innovative drug sector is entering a phase of selective stock picking in 2026, following a beta market in 2025. The A-share pharmaceutical industry has risen by 15.9% since the beginning of 2025, underperforming the CSI 300 index by 0.65 percentage points, ranking 17th among industries [2][14]. - The report highlights three key investment directions for 2026: overseas expansion of pharmaceuticals, brain-computer interfaces, and AI in healthcare [2]. Investment Strategy Overview - The innovative drug sector is expected to shift from a broad market rally to a focus on selective stocks in 2026. The average increase for 75 innovative drug sample indices in A-shares reached 54.8%, with Hong Kong's indices doubling [2]. - The report notes that as of December 5, 2025, there were 166 overseas business development (BD) projects, a significant increase from the previous year, with upfront payments reaching $6.3 billion, a growth of over 199% compared to 2024 [2]. Key Investment Directions Overseas Expansion - The report emphasizes the acceleration of Chinese innovative drugs entering international markets, with ADCs and bispecific antibodies being hot topics. The potential for GLP-1R target new drugs remains strong in areas such as long-acting formulations and oral medications [2]. Brain-Computer Interfaces - The report outlines the government's strategic push for brain-computer interfaces as a new economic growth point, with applications in medical rehabilitation for conditions like stroke and spinal cord injuries [2]. AI in Healthcare - The report discusses the establishment of clear short-term and long-term goals for AI in healthcare, covering various applications such as AI health management and clinical decision support systems [2]. Recommended Stocks - The report recommends several companies for investment, including Heng Rui Medicine (600276), BeiGene (688235), Mindray Medical (300760), and others, indicating a diversified approach across the innovative drug and medical device sectors [2].