Quantitative Models and Construction Methods 1. Model Name: Diffusion Index Model - **Model Construction Idea**: The model is based on the principle of price momentum, aiming to capture upward trends in industry performance[27][28] - **Model Construction Process**: The diffusion index is calculated for each industry, ranking them based on their momentum. Industries with higher diffusion index values are considered to have stronger upward trends. The model selects industries with the highest diffusion index values for allocation. - Formula: Not explicitly provided in the report - **Model Evaluation**: The model has shown mixed performance over the years. It performed well in 2021 and 2022 but faced significant drawdowns in 2023 and 2024 due to market reversals and failure to adjust to cyclical changes[27] 2. Model Name: GRU Factor Model - **Model Construction Idea**: This model leverages GRU (Gated Recurrent Unit) deep learning networks to process high-frequency price and volume data, aiming to identify industry trends and generate excess returns[34][39] - **Model Construction Process**: The GRU network is trained on historical minute-level price and volume data to predict industry rankings. The model then allocates to industries with the highest GRU factor scores. - Formula: Not explicitly provided in the report - **Model Evaluation**: The model has shown strong adaptability in short-term cycles but struggles in long-term trends and extreme market conditions. It has faced challenges in capturing excess returns in 2025 due to concentrated market themes[34][39] --- Model Backtesting Results 1. Diffusion Index Model - **2025 YTD Excess Return**: 0.37%[26][31] - **June 2025 Excess Return**: 1.99%[31] - **Weekly Average Return (June 2025)**: -0.65%[31] - **Weekly Excess Return (June 2025)**: 0.79%[31] 2. GRU Factor Model - **2025 YTD Excess Return**: -3.83%[34][37] - **June 2025 Excess Return**: 0.25%[37] - **Weekly Average Return (June 2025)**: -1.18%[37] - **Weekly Excess Return (June 2025)**: 0.25%[37] --- Quantitative Factors and Construction Methods 1. Factor Name: Diffusion Index - **Factor Construction Idea**: Measures the momentum of industries by ranking them based on their upward trends[28] - **Factor Construction Process**: The diffusion index is calculated for each industry weekly. Industries are ranked based on their index values, with higher values indicating stronger momentum. - Example Values (as of June 20, 2025): - Top Industries: Comprehensive Finance (1.0), Non-Bank Finance (0.973), Banking (0.97)[28] - Bottom Industries: Coal (0.174), Food & Beverage (0.313), Oil & Gas (0.387)[28] - **Factor Evaluation**: The factor effectively captures upward trends but may underperform during market reversals[27][28] 2. Factor Name: GRU Factor - **Factor Construction Idea**: Utilizes GRU deep learning to analyze high-frequency trading data and rank industries based on predicted performance[34][39] - **Factor Construction Process**: The GRU network processes minute-level price and volume data to generate factor scores for each industry. Industries are ranked based on these scores. - Example Values (as of June 20, 2025): - Top Industries: Coal (3.48), Non-Bank Finance (3.15), Utilities (2.65)[35] - Bottom Industries: Communication (-17.95), Media (-15.45), Defense (-11.87)[35] - **Factor Evaluation**: The factor is effective in short-term trend identification but struggles with long-term stability and extreme market conditions[34][39] --- Factor Backtesting Results 1. Diffusion Index Factor - **Top Weekly Changes (June 20, 2025)**: - Oil & Gas: +0.09 - Textiles: +0.044 - Metals: +0.036[30] - **Bottom Weekly Changes (June 20, 2025)**: - Agriculture: -0.229 - Defense: -0.086 - Building Materials: -0.078[30] 2. GRU Factor - **Top Weekly Changes (June 20, 2025)**: - Non-Bank Finance: Significant increase - Consumer Services: Significant increase - Comprehensive: Significant increase[35] - **Bottom Weekly Changes (June 20, 2025)**: - Communication: Significant decrease - Electronics: Significant decrease - New Energy Equipment: Significant decrease[35]

Market Performance Review - A-shares faced pressure due to ongoing geopolitical conflicts, with all major indices declining this week. The Shanghai Composite Index, which has a high proportion of large-cap dividend stocks, fell by only 0.10%, while other indices like the ChiNext and CSI 1000 saw larger declines [3][12][13] - The market sentiment has turned cautious, with only the banking, communication, and electronics sectors showing positive returns amid the intensifying Israel-Iran conflict. Investors shifted towards defensive sectors, particularly high-dividend stocks represented by banks [3][13] A-share High-frequency Data Tracking - The personal investor sentiment index fell into negative territory, with a 7-day moving average of -0.05% as of June 21, down from 4.6% on June 14. This indicates a shift from persistent pessimism to a more neutral stance among investors [4][15] - The financing capital showed slight net inflows, suggesting a potential recovery in investor sentiment, as the financing transaction volume as a percentage of total A-share trading has not decreased after a rebound [18] Future Market Outlook and Investment Views - The A-share market is expected to face continued pressure from geopolitical conflicts, particularly the Israel-Iran situation and potential escalations in U.S. tariffs. The upcoming internal policy window in July may reignite expectations for stimulus policies, particularly in real estate [4][28][29] - Investment strategy should focus on high dividend stocks with good value, such as banks, railways, and utilities. The timing for traditional domestic demand trades remains uncertain and will depend on the introduction of clear stimulus policies [5][29] Industry Rotation and Dividend Value Tracking - The current market is characterized by high rotation speed but low intensity, indicating a sideways trend in indices. The industry rotation began at the end of April and is expected to maintain a fast pace into June [19][21] - The dividend yield of high-dividend stocks, particularly in the banking sector, remains attractive in the context of potential interest rate cuts, enhancing their value proposition [25][21]

Quantitative Models and Construction Methods Diffusion Index Model - Model Name: Diffusion Index Model - Model Construction Idea: The model monitors the critical point of future diffusion index changes to predict market trends. - Model Construction Process: - The horizontal axis represents the relative price change of stocks in the future, ranging from 1.1 to 0.9, indicating a 10% rise to a 10% fall. - The vertical axis represents the length of the review period or future days, ranging from 20 to 10 days. - Example: A value of 0.07 at the horizontal axis 0.95 and vertical axis 15 days indicates that if all stocks in the micro-cap index fall by 5% after 5 days, the diffusion index value is 0.07. - Formula: $ \text{Diffusion Index} = \frac{\text{Number of stocks rising}}{\text{Total number of stocks}} $ - Model Evaluation: The model is useful for monitoring the critical point of future diffusion index changes and predicting market trends.[6][17][40] First Threshold Method (Left-side Trading) - Model Name: First Threshold Method - Model Construction Idea: The model triggers a signal based on the first threshold value to indicate trading actions. - Model Construction Process: - The model triggered a no-position signal at the closing value of 0.9850 on May 8, 2025. - Formula: $ \text{Threshold Value} = \text{Current Index Value} $ - Model Evaluation: The model provides early signals for trading actions based on threshold values.[6][43][44] Delayed Threshold Method (Right-side Trading) - Model Name: Delayed Threshold Method - Model Construction Idea: The model triggers a signal based on the delayed threshold value to indicate trading actions. - Model Construction Process: - The model triggered a no-position signal at the closing value of 0.8975 on May 15, 2025. - Formula: $ \text{Delayed Threshold Value} = \text{Current Index Value} $ - Model Evaluation: The model provides delayed signals for trading actions based on threshold values.[6][45][47] Dual Moving Average Method (Adaptive Trading) - Model Name: Dual Moving Average Method - Model Construction Idea: The model uses dual moving averages to trigger trading signals. - Model Construction Process: - The model triggered a no-position signal at the closing value on June 11, 2025. - Formula: $ \text{Signal} = \text{Short-term Moving Average} - \text{Long-term Moving Average} $ - Model Evaluation: The model adapts to market changes using dual moving averages to provide trading signals.[6][48][49] Model Backtesting Results Diffusion Index Model - Diffusion Index Model, Current Value: 0.34[40] First Threshold Method (Left-side Trading) - First Threshold Method, Closing Value: 0.9850[43] Delayed Threshold Method (Right-side Trading) - Delayed Threshold Method, Closing Value: 0.8975[47] Dual Moving Average Method (Adaptive Trading) - Dual Moving Average Method, Closing Value: Not specified[48] Quantitative Factors and Construction Methods Past Year Volatility Factor - Factor Name: Past Year Volatility Factor - Factor Construction Idea: The factor measures the volatility of stocks over the past year. - Factor Construction Process: - Formula: $ \text{Volatility} = \sqrt{\frac{\sum (R_i - \bar{R})^2}{N}} $ - This week's rank IC: 0.171, Historical average: -0.033 - Factor Evaluation: The factor is effective in capturing the volatility of stocks over the past year.[5][16][33] Beta Factor - Factor Name: Beta Factor - Factor Construction Idea: The factor measures the sensitivity of stocks to market movements. - Factor Construction Process: - Formula: $ \beta = \frac{\text{Cov}(R_i, R_m)}{\text{Var}(R_m)} $ - This week's rank IC: 0.145, Historical average: 0.004 - Factor Evaluation: The factor is effective in capturing the sensitivity of stocks to market movements.[5][16][33] Logarithmic Market Value Factor - Factor Name: Logarithmic Market Value Factor - Factor Construction Idea: The factor measures the logarithmic market value of stocks. - Factor Construction Process: - Formula: $ \text{Log Market Value} = \log(\text{Market Value}) $ - This week's rank IC: 0.138, Historical average: -0.033 - Factor Evaluation: The factor is effective in capturing the logarithmic market value of stocks.[5][16][33] Nonlinear Market Value Factor - Factor Name: Nonlinear Market Value Factor - Factor Construction Idea: The factor measures the nonlinear market value of stocks. - Factor Construction Process: - Formula: $ \text{Nonlinear Market Value} = (\text{Market Value})^2 $ - This week's rank IC: 0.138, Historical average: -0.033 - Factor Evaluation: The factor is effective in capturing the nonlinear market value of stocks.[5][16][33] Non-liquidity Factor - Factor Name: Non-liquidity Factor - Factor Construction Idea: The factor measures the non-liquidity of stocks. - Factor Construction Process: - Formula: $ \text{Non-liquidity} = \frac{\text{Number of non-trading days}}{\text{Total number of days}} $ - This week's rank IC: 0.125, Historical average: 0.038 - Factor Evaluation: The factor is effective in capturing the non-liquidity of stocks.[5][16][33] Factor Backtesting Results Past Year Volatility Factor - Past Year Volatility Factor, This week's rank IC: 0.171, Historical average: -0.033[5][16][33] Beta Factor - Beta Factor, This week's rank IC: 0.145, Historical average: 0.004[5][16][33] Logarithmic Market Value Factor - Logarithmic Market Value Factor, This week's rank IC: 0.138, Historical average: -0.033[5][16][33] Nonlinear Market Value Factor - Nonlinear Market Value Factor, This week's rank IC: 0.138, Historical average: -0.033[5][16][33] Non-liquidity Factor - Non-liquidity Factor, This week's rank IC: 0.125, Historical average: 0.038[5][16][33]

Report Summary 1. Report Industry Investment Rating No information about the report industry investment rating is provided in the given content. 2. Core Viewpoints - The market's "consensus expectation" of the bond market in the third quarter is strong, but it may lead to low volatility after "front - running." The probability of low - volatility due to "consensus expectation" is higher in the current market. When expectations are fulfilled, it may be the time for profit - taking. Asset - side interest rates will experience oscillations after "front - running" [4][20]. - The central bank's restart of treasury bond purchases needs to form a large short - end buying increment to create the "steep illusion" of the treasury bond yield curve, which is crucial for long - end interest rate trading [3][4]. - The long - end interest rate may break through the previous low by relying on the "steep illusion" of the treasury bond yield curve. However, the 1 - year treasury bond has limited further downward space, and if it continues to decline in the same way as funds and short - end coupon products, the space it brings to the 10 - year treasury bond is also limited [3][17]. 3. Summary by Related Catalogs "Consensus Expectation" as a Trading Bottleneck - **Funds**: The view on funds has been mostly realized. The 7D central rate still has some downward space. The rapid relaxation of the funds in June was driven by the increase in large - bank lending scale, which reached around 5 trillion. The 7 - month early period may see the funds price reach the bottom of its decline. Although there may be fluctuations during the tax period in late July, the stable and loose state is likely to continue, and the loose window can be measured in quarters [11][13]. - **Inter - bank Certificates of Deposit (NCDs)**: The view on NCDs has also been mostly realized. The subsequent trading center of NCDs may be 1.6%. Although the NCD interest rate may be lower than 1.6% at certain points in early July, the significance of 1.6% as the pricing center can be maintained throughout the third quarter [14]. - **Long - end Interest Rates**: The long - end interest rate may break through the previous low through the "steep illusion" of the treasury bond yield curve. The 1 - year treasury bond has limited further downward space, and the market hopes to see an "excess" downward space for the 1 - year treasury bond to bring more downward space for the 10 - year treasury bond [17]. - **Market Expectation of Central Bank's Treasury Bond Purchase**: The market's bet on the central bank's restart of treasury bond purchases is overly consistent. The "consensus expectation" of the bond market in the third quarter may lead to low volatility after "front - running" [4][20].

Investment Rating - The industry investment rating is "Outperform the Market" and is maintained [2] Core Views - Precious metals are expected to perform well in the long term despite a recent pullback, with a recommendation to overweight this sector [5] - Copper prices are expected to remain strong, with a support level around 9,350 USD per ton, influenced by macroeconomic factors and trade dynamics [6] - Aluminum prices are anticipated to trend upward, supported by easing trade tensions and a decrease in inventory levels [6] - Rare earth prices are projected to rise following a significant drop in export volumes, with expectations of increased demand due to recent diplomatic agreements [7] - Uranium prices have seen a significant increase, with expectations for a new upward trend in the second half of the year [8] Summary by Sections Industry Overview - The closing index for the industry is at 4,846.95, with a weekly high of 5,047.03 and a low of 3,700.9 [2] Price Movements - Basic metals saw price changes: Copper up 0.13%, Aluminum up 2.34%, Zinc up 0.86%, Lead up 0.13%, and Tin down 0.27% [20] - Precious metals experienced declines: Gold down 1.98%, Silver down 1.15%, while Platinum and Palladium saw increases of 4.08% and 1.69% respectively [20] Inventory Changes - Global visible inventories showed a decrease in Copper by 12,511 tons, Aluminum by 5,439 tons, and Zinc by 5,004 tons, while Lead saw an increase of 18,731 tons [34]

Industry Investment Rating - The industry investment rating is maintained at "Outperform the Market" [1] Core Insights - The report highlights that the domestic PFA brands are expected to enter a commercialization fast track in 2025, driven by their non-thermal ablation characteristics, shorter operation times, lower complication risks, and better long-term efficacy [5][6] - The pharmaceutical and biotechnology sector experienced a decline of 4.35% this week, underperforming the CSI 300 index by 3.9 percentage points, ranking 29th among 31 sub-industries [6][18] - The report emphasizes the importance of high-end medical device innovation, supported by recent regulatory measures aimed at optimizing lifecycle management [13][14] Summary by Sections Industry Overview - The closing index for the pharmaceutical and biotechnology sector is 7552.12, with a 52-week high of 8490.25 and a low of 6070.89 [1] Recent Developments - Johnson & Johnson announced significant progress in PFA research at the HRS2025 conference, showcasing three key PFA products with excellent safety and efficacy profiles [4][5] - The report notes that six domestic brands have received approval for PFA technology, marking a significant step towards commercialization [5] Subsector Performance - All sub-sectors within the pharmaceutical and biotechnology industry experienced declines this week, with the largest drop in the other biological products sector at 6.7% [6][23] - The report provides a detailed breakdown of weekly performance across various sub-sectors, indicating a general trend of retraction [6][24] Recommended and Beneficiary Stocks - Recommended stocks include innovative pharmaceutical companies such as Xinda Biopharma and Kangfang Biopharma, as well as medical device firms like Yingke Medical and Maipu Medical [7][29] - Beneficiary stocks in the innovative drug sector include Zai Lab, Yifan Biopharma, and others, while the medical device sector includes companies like Mindray Medical and Aohua Endoscopy [7][29] Regulatory Insights - The report discusses the approval of measures to support high-end medical device innovation, which includes optimizing special approval processes and enhancing communication mechanisms [13][14] - The report suggests that the implementation of these measures will significantly benefit high-tech medical devices, including AI-assisted diagnostic tools [14][28]

Investment Rating - The report initiates coverage with a "Buy" rating for the company [2] Core Views - The company reported a revenue of HKD 896.56 billion for the fiscal year 2025, a year-on-year decrease of 17.5%, while the net profit attributable to shareholders was HKD 59.16 billion, down 8.98%. Excluding the impact of gold lending, the operating profit was HKD 147.46 billion, an increase of 9.8% year-on-year [5][6] - The company is expected to benefit from the recovery in the gold jewelry industry starting from Q2 2025, with a strong growth outlook in the medium to long term due to the trend of self-consumption and the increasing demand for jewelry [11] Summary by Sections Company Overview - Latest closing price: HKD 12.76 - Total shares: 9.988 billion - Total market capitalization: HKD 1,274.44 billion - 52-week high/low: HKD 13.72 / HKD 6.43 - Debt-to-asset ratio: 69.89% - Price-to-earnings ratio: 22.15 [4] Market Analysis - The company experienced a revenue decline of 17.5% in FY2025, with mainland China sales at HKD 746 billion (down 17%) and Hong Kong/Macau at HKD 151 billion (down 21%) [6] - Same-store sales in mainland China showed a gradual improvement, with declines narrowing from -26% to -13% over the fiscal year [7] Product Analysis - The sales of priced gold products doubled, while traditional gold products saw a decline of 29.4%. The share of priced gold products increased from 19% in 2024 to 29% in 2025 [10] - The "Heritage" series has become a best-seller, contributing significantly to sales, with new product lines launched in 2024 and 2025 exceeding annual targets [10] Profitability Analysis - The operating profit for FY2025 was HKD 147.46 billion, reflecting a 9.8% increase year-on-year. The gross margin improved by 550 basis points to 29.5% due to high-margin products and strict cost control [10] Investment Recommendations and Earnings Forecast - The company is projected to achieve revenue growth rates of 3.3%, 5.5%, and 4.2% for FY2026 to FY2028, with net profit growth rates of 19%, 16%, and 7% respectively. The expected EPS for these years are HKD 0.71, 0.82, and 0.88, with corresponding P/E ratios of 18x, 16x, and 14x [11][14]

Investment Rating - The report assigns a "Buy" rating for the company, marking its first coverage [2]. Core Insights - The company has established a performance turning point with the growth in nitrocellulose demand and a contraction in supply. In the first four months of 2025, China's nitrocellulose export volume reached 7.6 million tons, a year-on-year increase of 39%, with export value rising by 86% to 250 million yuan [5][8]. - The company's revenue target for 2025 is set at 2.6 billion yuan, representing a 34% year-on-year growth, with a projected net profit of 140 million yuan, indicating a significant increase of 412% [6][9]. Company Overview - The latest closing price of the company's stock is 14.49 yuan, with a total market capitalization of 8 billion yuan. The company has a total share capital of 549 million shares, and its debt-to-asset ratio stands at 34.3% [4][6]. - The company experienced a revenue decline of 9.83% in 2024, with a net loss of 28 million yuan, primarily due to the return of overpaid prices for special order products [6][9]. Business Performance - Nitrocellulose business achieved a revenue of 703 million yuan in 2024, with a gross margin of 31.24%. Despite a revenue decline due to the shutdown of a production line, the gross margin reached a new high in recent years [6][7]. - The company is expected to benefit from the global increase in ammunition demand, with significant growth in both military and civilian applications for nitrocellulose [7][8]. Financial Projections - The company forecasts revenues of 2.61 billion yuan in 2025, 3.21 billion yuan in 2026, and 3.87 billion yuan in 2027, with corresponding net profits of 137 million yuan, 300 million yuan, and 428 million yuan respectively [12][13]. - The projected price-to-earnings ratios for the next three years are 58, 26, and 19 times [9][12].

Investment Rating - The report assigns an "Accumulate" rating for Zongshen Power (001696) with a first-time coverage [5][12]. Core Views - The company is a leading manufacturer in the domestic general gasoline engine, general machinery terminal products, and motorcycle engines. The business environment for general machinery is improving, and the company has positioned itself well in the aviation sector, which has significant growth potential [5][12]. - The company's performance has shown strong growth, with a more than 90% year-on-year increase in net profit attributable to shareholders in Q1 2025. For 2024, the company is expected to achieve revenue of 10.506 billion yuan, a 29% increase year-on-year, and a net profit of 461 million yuan, a 27% increase [5][12]. Business Segments Summary 1. **General Machinery Business**: This is the company's largest segment, benefiting from an upward trend in the industry. In 2024, sales of general power and terminal products reached 4.8345 million units, a 37.34% increase year-on-year, generating total revenue of 5.226 billion yuan, up 35.33% [6][7]. 2. **Motorcycle Engine Business**: The company maintains a leading position in the domestic motorcycle industry. In 2024, motorcycle engine sales reached 2.9852 million units, a year-on-year increase of 18.44%, with total revenue of 3.824 billion yuan, up 13.68% [8][9]. 3. **Aviation Engine Business**: The company has a unique position in the low-altitude economy, providing power systems for general aviation aircraft and drones. It has developed a product line focused on small and medium-sized aviation piston engines and has obtained airworthiness certifications from France and Germany [10][11]. Profit Forecast and Valuation - The company is projected to achieve revenues of 12.808 billion yuan, 15.020 billion yuan, and 17.712 billion yuan for 2025, 2026, and 2027, respectively, with year-on-year growth rates of 21.91%, 17.27%, and 17.92%. The net profit attributable to shareholders is expected to be 704 million yuan, 873 million yuan, and 1.113 billion yuan for the same years, with growth rates of 52.70%, 23.91%, and 27.50% [12][14].

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