21 May 2025 Equity Research Report China Strategy Tracker Equity Strategy Weaker growth, stronger policy support Weaker growth, stronger policy support. Growth in April was softer across the board – retail sales (+5.1% y-o-y), industrial production (+6.1% y-o-y), and FAI (+3.5% y-o-y, with all three constituents slowing). CPI was also muted (-0.1% y-o-y) and PPI fell further (-2.7% y-o-y). In the property sector: 1) based on high frequency data, house sales in 30 major cities have weakened since late March; ...

22 May 2025 Equity Research Report China Cybersecurity Equities Still facing a tough period Muted demand recovery with signs of improvement in emerging subsectors. We maintain our Buy rating on DBAPP and Hold on QAX and Venustech following their diverged 1Q25 results. DBAPP's 1Q25 revenue grew 11% y-o-y, while net loss narrowed 44% y-o-y, backed by solid demand in emerging security subsectors and expense control, beating our expectations. QAX and Venustech saw continued revenue contraction in 1Q25 due to we ...

22 May 2025 OPEC+ meeting preview: Big hikes come in threes OPEC+ will meet twice next week on 28 May and on 1 June, respectively, for the group's bi-annual ministerial meeting and the monthly OPEC+ "Voluntary 8" meeting. OPEC+ has already announced two accelerated supply hikes of 411kbd for May and June, equivalent to three monthly increments. We now expect OPEC+ to announce another big output hike for July, followed by normal monthly increases until end- 2025 and a pause in 1Q 2026. We believe factors dri ...

ZTO Express (ZTO US) Buy: Rising above the price fray Intense competition eroded profitability: ZTO's 1Q25 revenues missed consensus estimates by 7% while reported adjusted net profit missed by 5%. HSBC adjusted EBIT grew just 2% y-o-y, the weakest since 2Q21 and EBIT/parcel fell 14% y-o-y to RMB0.31, the lowest level barring the COVID-19 period, albeit still higher vs RMB0.06-0.16 for peers. ZTO's volume growth accelerated to 19% y-o-y (from 11% in 4Q24) but still slightly lagging the industry growth of 22 ...

Investment Rating - The report assigns a "Buy" rating to CRL, C&D, China Jinmao, and KE Holdings, indicating a positive outlook for these companies in the real estate sector [4][7][19]. Core Insights - The report highlights expectations for more supportive property policies in China to stabilize the housing market recovery, with a focus on tier-1 and tier-2 cities [2][7]. - There are clear signs of market bottoming, as evidenced by busy sales offices and solid project sell-through rates, despite macroeconomic uncertainties [3][7]. - The report emphasizes the resilience of luxury projects and the potential for pent-up demand to be released due to lower mortgage rates [2][3]. Summary by Sections Market Dynamics - Centaline's Vice President believes additional policies will be introduced to support the recovery cycle, particularly in tier-1 and tier-2 cities [2]. - Successful policy implementations, such as in Xiamen, have effectively reduced property purchasing costs through vouchers and subsidies [2]. Sales and Pricing Strategies - Site visits revealed high engagement levels among sales managers and a non-aggressive pricing strategy from developers, contributing to solid sell-through rates [3]. - Despite low mortgage rates (3.15% for first homes) and a downpayment requirement of 15%, buyers are cautious about leveraging due to macro uncertainties, with an average downpayment ratio of 40% [3]. Stock Recommendations - Preferred stocks include CRL (1109 HK, target price HKD36.30), C&D (1908 HK, target price HKD21.20), and China Jinmao (817 HK, target price HKD1.60), all rated "Buy" for their strong performance in the luxury and upgrader segments [4][19]. - KE Holdings (BEKE US, target price USD26.30) is also favored for its market share gains in both primary and secondary markets [4][19].

Investment Rating - The report assigns a "Buy" rating to CRL, C&D, China Jinmao, and KE Holdings, indicating a positive outlook for these companies in the real estate sector [5][8][19]. Core Insights - The pre-sale overhaul in lower-tier cities, such as Xinyang, is viewed as a positive development for the property market, as it aims to rebalance supply and demand by limiting new supply and reducing excess inventory [2][8]. - The Shanghai property market shows signs of recovery, with stronger sales and firmer pricing, particularly in the high-end segment driven by city migration and demand from affluent buyers [3][8]. - Debt restructuring among distressed developers is progressing, and the government's funding schemes have largely fulfilled housing completion duties, which supports market stability [4][8]. Summary by Sections Market Overview - The report highlights a structural market driver in the form of a supply squeeze, which is expected to support early-stage housing market recovery [2]. Company Analysis - CRL (1109 HK) is rated "Buy" with a target price of HKD 36.30, reflecting a 36.7% upside potential [19]. - C&D International (1908 HK) is also rated "Buy" with a target price of HKD 21.20, indicating a 37.3% upside [19]. - China Jinmao (817 HK) is rated "Buy" with a target price of HKD 1.60, suggesting a 42.9% upside [19]. - KE Holdings (BEKE US) is rated "Buy" with a target price of USD 26.30, implying a 31.5% upside [19]. Valuation Metrics - The report provides valuation metrics for various companies, including NAV discounts and expected PE ratios, which are essential for assessing investment opportunities [17][19].

Investment Rating - The report assigns a "Buy" rating to CRL, C&D, China Jinmao, and KE Holdings, indicating a positive outlook for these companies in the real estate sector [4][7][19]. Core Insights - The report highlights expectations for more supportive property policies in China to stabilize the housing market recovery, with a focus on tier-1 and tier-2 cities [2][7]. - Observations from site visits suggest a clear indication of market bottoming, with engaged sales teams and solid sell-through rates for projects [3][7]. - The report emphasizes the resilience of luxury projects and the potential for pent-up demand to be released due to lower mortgage rates [2][3]. Summary by Sections Market Dynamics - Centaline's Vice President believes additional policies will be introduced to support the recovery cycle, despite a pullback in April [2]. - Successful case studies, such as Xiamen, demonstrate the effectiveness of property vouchers and home purchase subsidies in reducing purchasing costs [2]. Sales and Pricing Strategies - Sales managers report high engagement levels, with developers adopting unaggressive pricing strategies, leading to solid project sell-through rates [3]. - Home buyers are financially capable but remain cautious due to macroeconomic uncertainties, with an average downpayment ratio of 40% [3]. Stock Recommendations - Preferred stocks include CRL (1109 HK, target price HKD36.30), C&D (1908 HK, target price HKD21.20), and China Jinmao (817 HK, target price HKD1.60), all rated "Buy" [4][19]. - KE Holdings (BEKE US, target price USD26.30) is also highlighted for its market share gains in both primary and secondary markets [4][19].

Investment Rating - The report upgrades Evergreen Marine (EVG) to Buy from Hold and OOIL to Hold from Reduce, while maintaining Buy ratings on Maersk and SITC, and Hold ratings on CSH-H/A and HLAG [6][10]. Core Insights - The US and China have agreed to a 90-day reduction in reciprocal tariffs, which is expected to boost shipments from China to the US and drive an early peak season in freight rates [2][10]. - Freight rates are anticipated to improve in Q2 and Q3 2025 due to capacity discipline among liners, with spot rates to the US rising by 4-8% [4][10]. - The container shipping sector is projected to remain profitable in 2025, with EBIT margins reported between 5-23% in Q1 2025, and profit estimates for certain companies raised by 16-31% [5][10]. Summary by Sections Tariff Developments - A 90-day reduction in US-China tariffs will lower tariffs on Chinese exports to the US to 30% from 145% and on US exports to China to 10% from 125% [2]. Shipping Volume Trends - April saw a 30-60% decline in China to US volumes, but recent data indicates a recovery, driven by restocking and the tariff pause [3][10]. Freight Rate Expectations - Freight rates have held steady in Q2 2025, with the SCFI Composite declining only 0.9% since March, while spot rates to the US have increased [4][10]. Profitability Outlook - The sector is expected to remain profitable in 2025, with raised profit estimates for companies like EVG, CSH H/A, and OOIL due to high transpacific exposure [5][10]. Stock Performance - Container shipping stocks have rebounded, with price increases of 2-13% since May 12, 2025, reflecting positive market sentiment [6][10]. Company-Specific Forecasts - Evergreen Marine's 2025 recurring profit forecast has been raised by 16% to TWD62 billion, while OOIL's recurring profits for 2025-26 have been increased by 11-31% [41][49]. - COSCO Shipping's EBIT estimates for 2025 have been raised by 42%, reflecting resilient spot freight rates and an early peak season [57][61].

Investment Rating - The report indicates a positive outlook on the trade talks between China and the US, suggesting potential upside risks for growth due to the rollback of tariffs [6][8]. Core Insights - The recent high-level trade talks in Geneva resulted in a significant breakthrough, with both sides agreeing to a consultation mechanism for trade and economic issues, reflecting a constructive tone and mutual respect [2][3]. - The US will roll back tariffs on China to 10% for 90 days, while China will also reduce its tariffs to 10% for the same period, which is expected to alleviate the burden on businesses affected by previous tariffs [6][7]. - The restoration of dialogue channels and establishment of key contact points between both countries is crucial for facilitating further discussions and reducing the risk of trade escalations [9]. Summary by Sections Trade Talks Overview - The first set of high-level trade talks since the start of Trump 2.0 took place on May 10-11, 2025, in Geneva, involving key officials from both sides [2]. - A joint statement was issued on May 12, highlighting the agreement on a consultation mechanism for trade and economic issues [2][3]. Tariff Adjustments - Both countries agreed to a 90-day pause with a rollback in tariffs, with China facing an additional 30% tariff and the US facing 10% [6]. - The rollback of tariffs is expected to provide relief to businesses that have been impacted by reciprocal tariffs since April 9, 2025 [4][6]. Economic Implications - The additional 30% tariffs could potentially drag China's GDP down by approximately 0.9 percentage points, but the rollback presents upside risks for growth if successfully implemented [8]. - Future discussions may extend beyond trade, indicating that a comprehensive agreement may require further negotiations [8].

Investment Rating - The report indicates a muted inflation environment in China, with a headline CPI of -0.1% year-on-year in April, suggesting a cautious outlook for consumer prices [4][6]. Core Viewpoints - The report highlights the need for a faster pickup in domestic demand to stabilize prices, as external demand faces ongoing challenges [4][10]. - Core CPI remained stable at 0.5% year-on-year, supported by consumption policies, while the headline PPI fell deeper to -2.7% year-on-year due to lower commodity prices [4][9]. Summary by Sections Inflation Overview - Headline CPI showed a slight decline of -0.1% year-on-year in April, with core CPI stable at 0.5% year-on-year [4][6]. - Food prices recorded a narrower decline of -0.2% year-on-year, with pork prices rising modestly by 5.0% year-on-year [5][6]. Producer Price Index (PPI) - The headline PPI fell by -2.7% year-on-year, with significant declines in petroleum and coal manufacturing prices, which dropped by 11.1% year-on-year [9][12]. - The report notes that external demand may face headwinds due to tariff risks, which could further pressure PPI [10][12]. Policy Implications - The National Development and Reform Commission allocated cRMB80 billion to support trade-in programs, indicating a focus on boosting consumption [6]. - The Politburo Meeting emphasized expanding services consumption, with the People's Bank of China planning a RMB500 billion relending program for services and elderly care [6][12].