6 May 2025 Asia Quantitative Strategy Asia Strategy (Quant+Fundamental): 34 stocks for value, growth and quality investors Rupal Agarwal +65 6326 7641 rupal.agarwal@bernsteinsg.com Robin Zhu +852 2123 2659 robin.zhu@bernsteinsg.com Alex Wang, CFA +852 2123 2613 alex.wang@bernsteinsg.com Boris Van +852 2123 2617 boris.van@bernsteinsg.com Miki Sogi, Ph.D. +81 3 6777 6991 miki.sogi@bernsteinsg.com Rahul Malhotra +65 6326 7642 rahul.malhotra@bernsteinsg.com eunice.lee@bernsteinsg.com Jay Huang, Ph.D. +852 2123 ...

Investment Rating - The report maintains a Buy rating on Sany Heavy Industry with a target price of Rmb24.00, indicating an expected share price return of 25.1% and a total expected return of 26.6% [6]. Core Insights - Sany Heavy Industry is focusing on high-quality growth and third-party markets due to the ongoing deglobalization trend, targeting regions without competitive local construction machinery OEMs [1][2]. - The management is optimistic about the demand for excavators in China, driven by labor replacement and the export of second-hand excavators, while remaining cautious about non-excavator demand due to a sluggish property market [3][5]. - Significant upside potential is identified in ultra-large excavators and aftermarket services, where Sany currently lags behind competitors like Caterpillar and Komatsu [4][5]. Summary by Sections Market Focus - Sany plans to concentrate on third-party markets such as the Middle East, South America, and Africa, where local competition is minimal [2]. Demand Outlook - Management expresses a positive outlook for excavator demand in China, anticipating a shift similar to Japan's market, while being cautious about non-excavator machinery due to ongoing property market challenges [3]. Growth Strategy - The company aims for high-quality growth by focusing on receivable recoveries and investing in R&D while reducing operational expenses to enhance competitiveness [5][8]. Capital Expenditure - Future capital expenditure is expected to remain low, around Rmb2.9 billion, reflecting a 35% year-over-year decrease, as Sany does not plan significant capacity expansion in China due to oversupply [8]. Global Expansion - Sany is considering expanding production capacities in regions like Brazil and Eastern Europe to adapt to the deglobalization trend, where production costs are significantly lower than in China [8]. IPO Plans - The planned Hong Kong IPO is viewed as a step towards deepening Sany's globalization efforts, despite having sufficient cash reserves for operational needs [9].

Investment Rating - The report maintains a Neutral rating across equity regions to maximize diversification, with an Overweight (OW) stance on bonds and an Underweight (UW) on credit [3][6]. Core Insights - The report highlights a cross-asset repricing of growth and inflation due to rising tariff risks, leading to a more defensive investment stance [1][7]. - US equity strategists have reduced their S&P 500 return forecasts to -5% for 3 months and +6% for 12 months, while European strategists have adjusted their forecasts to -6% for 3 months and +5% for 12 months [3][19]. - The average US tariff rate is expected to rise by 5 percentage points to 15%, with GDP growth revised down to 1% from 1.5% [1][2]. Summary by Sections Economic Outlook - The report indicates a mixed economic outlook with US manufacturing PMI falling to 49.8, and inflation expectations rising, leading to a revised recession probability of 35% [1][2]. - European economists have also cut growth forecasts and raised inflation expectations, anticipating an ECB cut in July [1]. Asset Allocation - The report suggests a shift to more defensive positions, recommending selective hedges due to elevated implied volatility across asset classes [3][6]. - The commodities team has raised their 2025 gold forecast to $3,300 per troy ounce, indicating a shift in diversification strategies towards gold and the Yen [2][19]. Market Performance - The report notes a decline in cross-asset pricing of growth across regions, with credit repricing growth risks more clearly [2][19]. - The Dollar has become more sensitive to the S&P 500, reducing its diversification potential, while gold and Yen have emerged as key diversifiers [2][19].

Summary of Kingsoft Cloud (KC) Conference Call Company Overview - **Company**: Kingsoft Cloud (KC) - **Industry**: Cloud Services in China Key Points and Arguments Demand and Revenue Outlook - Kingsoft Cloud's revenue from Xiaomi and Kingsoft Corp accounted for **22%** of 4Q24 revenue, an increase of **2 percentage points quarter-over-quarter** [5] - Management is optimistic about rising demand, particularly in AI applications, and has set a revenue cap for 2025-27 based on estimated computing power clusters of Tesla's Full Self-Driving (FSD) technology [5] - Projected cloud revenue from Xiaomi for 2025 is estimated at **Rmb2.3 billion**, which is part of Xiaomi's **Rmb8 billion** AI investments [5] AI Revenue Breakdown - Approximately **50%** of AI revenue is derived from Xiaomi/Kingsoft, with the remainder coming from external customers in AI, autonomous driving, and robotics [5] - Training demand accounted for most of the revenue in 4Q24, but inference demand has been increasing due to the emergence of DeepSeek, which has lowered AI investment thresholds for mid-sized enterprises [5] AI Cloud Unit Economics - The payback period for upfront AI GPU server investments is estimated at **3-4 years** [6] - AI revenue enjoys a gross profit margin (GPM) of **20%+**, compared to **10%+** for traditional public cloud services [6] Growth Projections - Kingsoft Cloud is expected to see a **33%** revenue growth in 2025, up from **10%** in 2024, marking the fastest growth among covered cloud companies [7] - Revenue from related parties (Xiaomi/Kingsoft) is projected to grow at a **48% CAGR** from 2024 to 2027, while third-party customer revenue is expected to grow at **14% CAGR** [7] Investment Strategy - Kingsoft Cloud plans to invest **Rmb10 billion** in AI for 2025, which includes capital expenditures and off-balance-sheet arrangements for computational power [9] - The company is focusing on prudent investments, such as renting or revamping data centers instead of building new ones [9] Competitive Landscape - Kingsoft Cloud aims to outpace peers by **5-10 percentage points** in revenue growth rate and is adjusting its customer base to improve efficiency [9] - The GPM in 4Q24 was close to that of China's largest cloud hyperscaler, indicating competitive positioning [9] Risks and Valuation - The current rating for Kingsoft Cloud is **Neutral**, with a 12-month target price of **US$15.6** based on discounted cash flow (DCF) analysis [2][8] - Key risks include stronger revenue synergies with related parties, competition, and the ability to secure funding for capital expenditures [8] Additional Important Information - Kingsoft Cloud's market cap is approximately **$3.8 billion**, with projected revenues of **Rmb7.79 billion** for 2024 [10] - The company is currently rated **Neutral** relative to its peers, reflecting a fair valuation in the market [7] This summary encapsulates the critical insights from the conference call, highlighting Kingsoft Cloud's growth potential, competitive positioning, and strategic investments in AI and cloud services.

Summary of Conference Call Notes Industry and Company Involved - The conference call primarily discusses the shipping and maritime industry, focusing on the impact of the US 301 tariff law on container shipping and shipbuilding sectors, as well as the strategic moves of Mediterranean Shipping Company (MSC) and Deep Sea Technology. Core Points and Arguments - **Impact of US 301 Tariff Law**: The implementation of the US 301 tariff law is expected to significantly affect the container shipping and shipbuilding industries. If enacted, congestion at West Coast ports will likely lead to increased freight rates and affect shipbuilding orders. Major shipping alliances, such as the Ocean Alliance, may adjust routes, causing a surge in port throughput that US ports may struggle to accommodate, further driving up container shipping prices [3][5][6]. - **Demand for Small Container Ships**: The 301 tariff law will likely result in higher rental rates for small container ships. Major shipping alliances are expected to require more small feeder vessels for service quality, leading to a shortage of these ships, particularly for Southeast Asia routes, thus pushing rental prices up [5]. - **Mediterranean Shipping Company's Acquisition of Long River**: The acquisition is driven by commercial synergy rather than geopolitical tensions. MSC aims to enhance its port share and service quality, especially on US routes. If interests are managed well, the acquisition has a high probability of success and significant commercial value for MSC [6]. - **BlackRock and Infrastructure Investment Group's Influence**: Their investment strategy in the port sector is expected to impact the valuation of port assets. Their approach is similar to that of Japanese trading companies before market increases, suggesting a need for close monitoring of their proposals [7]. - **OPEC Production Increase and Its Effect on the Cruise Market**: Recent pressures on Iran's black market and OPEC's production increase have reversed the declining trend in the cruise market's share. If the full 2.2 million barrels per day increase is realized, VLCC freight rates could reach between $80,000 and $100,000 [8]. - **Aging Fleet and New Ship Deliveries**: Although new ships are expected to be delivered starting in 2026, the number of aging vessels being retired is minimal, which will not offset the aging fleet trend. The actual impact on capacity withdrawal remains limited due to the indistinct separation between black market and normal market operations [9]. - **Deep Sea Technology's Potential**: If Deep Sea Technology can successfully mass-produce high-tech ship designs, it will enhance the technical level of shipyards and create valuation opportunities. The 301 investigation is somewhat related to the development of deep-sea technology, which could mitigate negative impacts on civil shipping [10]. - **Marine Ranching Demand Surge**: The demand for marine ranching is increasing due to consumption upgrades. The adaptation of drilling platforms or VLCCs for tuna farming has already been implemented in Shandong. Increased investment in this area could yield high-profit opportunities for Deep Sea Technology [13]. - **Deep Sea Mining Potential**: With rising gold prices and increasing demand for rare metals, the demand for deep-sea mining vessels is expected to grow. The cost of manganese mining is currently lower than some land-based mining, indicating potential for development in this sector [14]. - **High-Standard Dredging Vessels**: These vessels are not only relevant for South China Sea disputes but also for anticipated deep-sea engineering projects, such as data center construction. Capital expenditure or technological breakthroughs could drive these projects forward, enhancing the flexibility of shipyards and providing further revaluation opportunities [15]. Other Important but Possibly Overlooked Content - The aging fleet issue is compounded by the limited number of older vessels being retired, which could lead to a supply-demand imbalance in the future [9]. - The strategic importance of managing interests in acquisitions, particularly in the context of geopolitical tensions, is highlighted as crucial for successful transactions [6]. - The potential for technological advancements in underwater robotics and AI to reduce costs and break through technical barriers in deep-sea technology is noted as a positive development [11].

Summary of Conference Call Industry or Company Involved - The discussion primarily revolves around the **Hong Kong stock market**, specifically the **Hang Seng Technology Index** and its performance in the context of **technology growth stocks** [1][2][3]. Core Points and Arguments 1. **Performance of Hong Kong Technology Stocks**: The Hang Seng Technology Index has shown strong performance, outperforming A-share stock funds, indicating a favorable investment environment in the technology sector [1][2]. 2. **Market Trends**: There is an expectation of a significant upward trend in the stock market by the first quarter of 2025, contrasting with the previous two to three years of stagnation [3][5]. 3. **Investment Strategy**: Emphasis on selecting high-quality growth stocks within the Hong Kong market, particularly in technology sectors, as a strategic investment approach [2][11]. 4. **Economic Recovery**: The market is anticipated to recover gradually due to recent monetary and fiscal policies, despite the economic challenges faced in 2022 and 2023 [5][6]. 5. **Sector Opportunities**: Various sectors, including artificial intelligence, semiconductor technology, and renewable energy, are highlighted as having significant investment opportunities [7][8]. 6. **Confidence in Policy Support**: Recent high-level meetings with private enterprises are seen as a signal of government support and confidence in the market, which could bolster investor sentiment [8][9]. 7. **Focus on Growth Industries**: The recommendation to focus on growth industries, particularly technology, aligns with the broader market recovery narrative [9][11]. 8. **Comparison with U.S. Tech Giants**: The discussion draws parallels between China's emerging tech giants and the U.S. tech giants, suggesting that similar investment opportunities exist in the Chinese market [12][13]. 9. **Valuation Recovery Potential**: Many of the discussed tech companies have seen significant declines from their previous highs, indicating potential for recovery and growth in stock prices [14][15]. 10. **Investment Vehicles**: The mention of specific funds, such as those focusing on the Hang Seng Technology Index, suggests practical investment options for capturing growth in this sector [16][17]. Other Important but Possibly Overlooked Content - The call emphasizes the importance of a long-term perspective in investing, particularly in the context of recovering markets and the cyclical nature of stock performance [5][10]. - The potential for high dividend yields in financial sectors compared to low bond yields is discussed, suggesting a shift in investment focus towards equities [10]. - The call concludes with an invitation for further engagement and questions from participants, indicating an open dialogue for future discussions [18].

Financial Data and Key Indicators Changes - The GDP growth forecast for 2024 has been adjusted to 4.8%, reflecting stronger-than-expected exports and the impact of policy measures, including additional support for the real estate sector and increased fiscal spending [70] - The nominal income growth for residents in the first quarter was only 6.8%, below the pre-pandemic average of 8.0% [13] - The reported non-performing loan (NPL) balance for commercial banks increased by 8.1% year-on-year, reaching 3.2 trillion RMB, with an NPL ratio of 1.6%, remaining stable compared to 2022 [35] Business Line Data and Key Indicators Changes - The real estate sector continues to face challenges, with new home sales down 47.2% from the peak in July 2021, and new housing starts declining by 24.6% year-on-year in the first four months of 2024 [21] - The automotive sector is experiencing a structural shift towards electric vehicles, with electric vehicle sales growing by 38.2% year-on-year, while internal combustion engine vehicle sales stagnated with a growth of only 0.1% [58] Market Data and Key Indicators Changes - The overall fiscal revenue in China decreased by 3.4% year-on-year in the first four months of 2024, primarily due to a decline in domestic value-added tax reflecting weak domestic demand [62] - The import volume in the first quarter of 2024 increased by an average of 3.6% year-on-year, supported by robust industrial activity and improved exports [19] Company Strategy and Development Direction and Industry Competition - The government has implemented measures to stabilize the real estate market, including easing purchase restrictions and lowering down payment ratios, but these have not yet effectively revived the sector [46] - Structural approaches are needed to manage the decline in the real estate sector and restore consumer confidence, emphasizing the urgency of implementing supply-side measures [46] Management's Comments on Operating Environment and Future Outlook - The management highlighted that while external demand has supported short-term economic growth, the Chinese economy may still be affected by global growth slowdowns and tightening financial conditions [45] - The management noted that the aging population and high debt levels are expected to drag down domestic GDP growth in the medium term, with GDP growth forecasted to slow to an average of 4.1% in 2025-2026 [39] Other Important Information - The overall producer price index (PPI) continued to face deflationary pressure, with a year-on-year decline of 2.6% in the first four months of 2024, reflecting supply-demand imbalances in certain industries [55] - The fiscal deficit as a percentage of GDP was 1.4% at the end of April, indicating potential risks of budget execution [62] Q&A Session Summary Question: What are the expectations for GDP growth in 2024? - The GDP growth for 2024 is expected to be 4.8%, up from previous forecasts due to stronger exports and supportive policy measures [70] Question: How is the real estate sector performing? - The real estate sector is struggling, with new home sales down 47.2% from the peak in July 2021, and new housing starts declining significantly [21] Question: What measures are being taken to support the economy? - The government has introduced measures to stabilize the real estate market, including easing restrictions and providing liquidity support, but these have yet to yield significant results [46]

Core Viewpoint - CK Hutchison Holdings Limited (CKHUY) is a diversified conglomerate with operations in 50 countries, focusing on four main business segments: ports and related services, retail, infrastructure, and telecommunications [3][4][5][6][7]. Business Segments - **Ports and Related Services**: CKHUY operates 53 ports across 24 countries, providing services such as distribution centers and ship repair, making it the world's leading port network [4]. - **Retail**: The AS Watson Group, a subsidiary of CKHUY, is the largest health and beauty retailer globally, with operations in 28 markets, including health and beauty products, supermarkets, and luxury perfumeries [5]. - **Infrastructure**: CKHUY invests in energy, water transportation, waste management, and other infrastructure-related businesses, primarily in Hong Kong, Mainland China, the UK, Europe, Australasia, and North America [6]. - **Telecommunications**: The company serves over 175 million customers across Europe and Asia, providing mobile and Wi-Fi services [7]. Financial Performance - **EBITDA**: In 2023, CKHUY's EBITDA remained steady, with a slight underlying change of -1%, primarily due to declines in the ports and related services segment [13][14]. - **Free Cash Flow**: Underlying free cash flow increased by 12% year-over-year, indicating strong cash generation capabilities [16][17]. - **Debt Reduction**: CKHUY reduced gross debt by HKD 41.7 billion and net debt by HKD 35 billion, strengthening its balance sheet [21]. - **Valuation Metrics**: The stock trades at a trailing P/E ratio of approximately 6.0, with a dividend yield of 6.8% and a payout ratio of 40% [23]. Market Position and Outlook - **Credit Rating**: CKHUY's credit rating is on the verge of an upgrade, supported by its diversified business model and stable cash flows [23]. - **Stock Valuation**: The stock is considered undervalued, with estimates suggesting it could triple to reach fair value, driven by strong fundamentals and potential management actions [23].

Industry Overview - Global eCommerce sales are expected to grow at a +7% CAGR between 2023 and 2028, reaching $5.0tn by 2028, up from $3.6tn in 2023 [7][8] - China and the US are the largest regions, expected to drive 2/3 of global eCommerce growth, with smaller regions like India (+19%) and ASEAN (+9%) growing faster [8] - eCommerce penetration is projected to increase from 30% in 2023 to 34% in 2028, with an average annual increase of +80bps/yr [8] Regional Insights United States - US eCommerce sales are forecasted to grow at a +7% CAGR through 2028, reaching $1.6tn, with online penetration rising to 32% [27] - Discretionary categories are under pressure, with consumers shifting spending towards essentials, benefiting companies like Amazon [32][33] China - China's eCommerce sales are expected to grow by 8% in 2024, driven by promotional events, better shopping experiences, and leading fulfillment speeds [48] - Platforms like Alibaba, JD, and PDD are focusing on price competitiveness and expanding SKU selections to cater to value-conscious consumers [51] ASEAN - ASEAN eCommerce GMV is expected to grow +16% YoY in 2024, driven by platform investments and the rise of livestream and short-form video shopping formats [68] - Indonesia is the largest market in ASEAN, accounting for 47% of the region's eCommerce TAM [68] Latin America - LatAm eCommerce is expected to grow at a +10% CAGR through 2026, with online penetration reaching 27% by 2026 [79] - Cross-border competition is intensifying, with Temu and TikTok Shop entering markets like Brazil and Mexico [85][86] Europe - Europe accounts for 16% of global eCommerce sales, with penetration expected to reach 30% by 2028 [96] - The UK leads in online penetration, with non-food retail online penetration stabilizing at 37% in 2023 [97][98] Korea - Korea's eCommerce market is expected to grow at a high-single-digit rate in 2024, with online penetration reaching 33% by 2026 [117] - Retail market growth is lukewarm, with eCommerce penetration growth picking up since Q4 2023 [117][120] India - India's eCommerce market is forecasted to grow at a 20% CAGR through 2026, reaching $92bn, driven by beauty and fashion/apparel categories [123] - Quick commerce platforms are rapidly expanding, with Zomato achieving store-level profitability in this segment [124] Competitive Landscape - The top 5 eCommerce platforms (Amazon, Alibaba, PDD, JD, Shopify) held a combined 63% market share in 2023, with further consolidation expected [21][22] - Asia-based platforms like Temu and TikTok Shop are gaining share globally, with Temu expected to reach $45bn in GMV in 2024 [9] Key Trends - Platforms are focusing on price competitiveness, expanding SKU selections, and promoting second-hand goods to cater to value-conscious consumers [51] - Adtech upgrades are driving higher take rates, with platforms shifting from CPC to CPS models [56] - Social commerce, including livestream and short-form video shopping, is becoming a significant driver of eCommerce growth, particularly in ASEAN [73]

A pedestrian walks past a Vodafone store in central London on May 16, 2023. British mobile giant Vodafone is to axe 11,000 jobs over three years in the latest cull to hit the tech sector, as new boss Margherita Della Valle slammed recent performance.Britain's competition watchdog on Friday said it is opening an investigation into the proposed merger between Vodafone and the Three UK mobile network owned by CK Hutchison.This is a breaking news story. Please check back for more. ...