April 23, 2025 09:12 AM GMT Greater China Technology Hardware | Asia Pacific PC/NB: Turning conservative We lower PC unit assumptions 3% each for 2025-26 for our Greater China Tech Hardware coverage and flow that through our models. We stay OW on Lenovo, downgrade Asustek to EW and downgrade Acer, Compal and Foxconn to UW. We turn more cautious on PCs: Given the increased policy uncertainties and recession concerns, we see risks on DT/NB budgets, supported by results from our recent US CIO survey. We lower ...

Investment Rating - The industry view is rated as Attractive, with a preference for gold, cement, building materials, and steel for 2Q25 [7]. Core Insights - Demand in the materials sector showed signs of recovery in 1Q25, but the outlook for 2Q25 is uncertain due to tariff concerns [2]. - The report anticipates that metals-related stocks may outperform in 2H25 as further stimulus is expected [1][6]. - The impact of tariffs is projected to lower China's 2025 real GDP forecast by 30 basis points to 4.2% [2][18]. Summary by Sections Gold - Gold is identified as the top pick within commodities, supported by ongoing central bank buying and rising ETF inflows [3]. - Lower Treasury yields are expected to enhance gold's macro backdrop [3]. Cement and Steel - Cement supply-side controls were announced in November 2024, leading to a focus on profitability rather than price wars [4]. - A production cut of 30 million tons and an export cut of 15-20 million tons for steel is anticipated in 2025 [4]. Metals - In 2H25, copper and aluminum are expected to outperform due to continued demand from grid and EV-related infrastructure [5]. - The report notes that aluminum will benefit from margin expansion amid limited supply increases [5]. Tariff Impact - The cumulative US tariffs are expected to have a more significant growth drag compared to the 2018-19 period, with a projected weighted average tariff hike on China reaching 34% by year-end [17]. - The tariff shocks are anticipated to affect both trade channels and domestic demand, contributing to a GDP growth reduction of 90 basis points [18].

Investment Rating - The report suggests a balanced approach to investment, particularly favoring large-cap internet/tech, consumer, and healthcare sectors in a potential tariff de-escalation scenario [2][4]. Core Insights - Market sentiment has improved significantly due to comments from US officials indicating a potential reduction in tariffs against China, leading to a notable rise in indices such as the Nasdaq Golden Dragon Index by 3.7% and Hang Seng indices by approximately 2.4% and 3.1% [3][4]. - In the event of tariff de-escalation, Chinese equities are expected to benefit, particularly offshore markets outperforming onshore A-shares, with large-cap internet/tech, consumer, and healthcare sectors being the most positively impacted [4][5]. - Despite the positive market reaction, the report emphasizes the need for patience and a cautious approach, as there is currently no solid evidence of effective bilateral negotiations taking place [5]. Summary by Sections Market Sentiment - Significant improvement in market sentiment following optimistic comments from US officials regarding tariffs [3]. - Positive earnings revision stabilization trend anticipated if tariffs are reduced, alleviating investor concerns [4]. Sector Performance - Large-cap internet/tech, consumer, and healthcare sectors are best positioned to benefit from tariff de-escalation [4]. - Offshore equities expected to outperform onshore A-shares in a de-escalation scenario [4]. Strategic Positioning - Investors are advised to maintain a balanced approach, holding high-quality large-cap internet names and blue-chip consumer stocks while also keeping some defensiveness in their portfolios [5][8].

Investment Rating - The report does not explicitly provide an investment rating for the industry or economies discussed Core Insights - Shifting away from China for Asia ex China (AXC) economies to avoid US tariffs is deemed nearly impossible due to China's integral role as a key market, critical supplier, and significant source of FDI inflows [1][5][13] - Implementing trade restrictions on China would likely lead to reciprocal measures from China, resulting in significant negative impacts on trade, capital expenditure, and growth outlook for AXC economies [5][8][13] Summary by Sections Trade Relations and Economic Impact - The US may seek to have AXC economies limit their economic involvement with China, but the report argues that such restrictions are impractical given China's central role in the region's production network [5][8] - China is a major source of end demand, critical inputs, and FDI, especially for ASEAN economies, making any trade restrictions potentially damaging [5][10][12] Economies at Risk - Economies like Vietnam, Thailand, and India, which have trade surpluses with the US and deficits with China, may be pressured to impose tariffs on China, but the report suggests they would struggle to do so [8][10] - Japan, Korea, and Taiwan, which also have significant trade surpluses with the US, run trade surpluses with China, making tariffs on Chinese imports unlikely [8][10] Trade Dynamics - Exports to the US account for 17.5% of AXC economies' total exports, while exports to China account for 16.6%, highlighting the importance of both markets [10][24] - China accounts for 41% of global value chain-related output in manufacturing, emphasizing its critical role in the region's supply chains [12][21] Potential Measures and Challenges - The report evaluates three potential measures the US could ask AXC economies to adopt: stricter rules of origin, tariffs on China, and limiting investment from China, all of which present significant challenges [15][16] - Imposing tariffs on Chinese imports could lead to inflationary pressures and disruptions in domestic manufacturing sectors, with potential retaliatory actions from China [18][31] Investment Flows - China's FDI inflows account for 11% of total FDI in ASEAN economies, with significant reliance on Chinese investments, particularly in Singapore, which acts as a conduit for FDI into ASEAN [37][39] - Other Asian economies like Japan, Korea, and Taiwan have lower reliance on Chinese FDI, which has been declining, thus limiting exposure to retaliatory measures [38][39] Transshipment and Domestic Production - The report notes limited evidence of transshipment activities in Vietnam, Thailand, and India, suggesting that their trade deficits with China reflect reliance on Chinese inputs for domestic production rather than trade rerouting [51][52]

Investment Rating - Industry view is rated as In-Line [7] Core Insights - Key industry trends include GB300 system assembly yield, China's H20 shipment license, and upcoming AI capital expenditures from cloud service providers (CSPs) [7] - TSMC maintains a mid-40% five-year CAGR target for AI semiconductor revenue despite uncertainties surrounding H20 [2][6] - Huawei's Ascend 920 chip is set for mass production in 2H25, indicating ongoing evolution in China's AI GPU landscape [3][12] Summary by Sections AI Supply Chain Dynamics - The forecast for H20 baseboard assembly has been cut in half, raising concerns about potential production cuts at TSMC and Amkor [2] - If the H20 license is delayed, TSMC may redirect unused wafer capacity to H200 production if demand persists [2] Hardware Developments - The GB300 server racks are reverting to the Bianca board design, which may improve assembly yields [4][5] - Analysts suggest that the reversion to the Bianca board indicates improved yields for the GB200/Bianca board [5] Stock Market Implications - Updates on AI capital expenditures from global CSPs will be crucial for investor confidence [6] - Key Asian supply chain stocks like TSMC, Hon Hai, and Wistron appear undervalued but require new catalysts for performance [6] GPU Market in China - Huawei's new AI GPU, Ascend 920, will utilize a 6nm process and is expected to replace H20 chips, which are currently restricted [12][15] - The CloudMatrix 384 system from Huawei aims to compete with Nvidia's offerings, showcasing significant computing power [13] Future Projections - The demand for CoWoS (Chip on Wafer on Substrate) is projected to grow significantly, with NVIDIA leading the demand [18][22] - AI computing wafer consumption is expected to reach up to $16.1 billion in revenue by 2025 [37]

Investment Rating - The report downgrades Goertek and Lingyi to Underweight (UW) and Genius to Equal-weight (EW) due to vulnerabilities in the Apple supply chain related to tariff changes and production location diversification pressures [1][5]. Core Insights - The Apple supply chain is viewed as the most vulnerable to tariff changes, leading to a reduction in earnings estimates for 2025 and 2026 by an average of 12% and 15% respectively, resulting in expected earnings growth of 8% and 14% year-over-year [1][3]. - The report emphasizes the need for "China+1" or "+2" production bases to mitigate tariff impacts, noting that capacity diversification may take 1-2 years to implement and could increase overall operational costs [4][12]. - The report suggests it is too early for investors to consider bottom-fishing in the downgraded companies due to ongoing tariff uncertainties and unattractive valuations [5][31]. Summary by Sections Earnings Estimates - iPhone build estimates are revised to flat year-over-year in 2025 (214 million units) and a 4% increase in 2026 (223 million units), reflecting price inflation from tariff hikes [8][10]. - The production cost in the US is projected to be at least 50% higher than in China, with costs in Vietnam and India also rising by 15% and 25% respectively over the past five years [8][10]. Price Target Changes - Price targets have been cut for several companies, including Genius to NT$400, Crystal to RMB22, Largan to NT$2,800, BYDE to HK$45, and AAC to HK$50, reflecting downward revisions in earnings estimates [32][31]. - The report indicates that the group trades at 17.1x 2025e PE and 14.8x 2026e, which is higher than the 8-year trading average of 15x for the tech hardware sector [3][11]. Production and Demand Analysis - The report highlights a significant gap between US demand and non-China production, particularly for iPhones, iPads, and AirPods, with production still highly concentrated in China [13][16]. - The ongoing trade conflict is expected to continue raising production costs, necessitating a reevaluation of production strategies within the tech hardware supply chain [12][13].

Investment Rating - The report assigns an "Overweight" rating to Vertiv (VRT) with a price target of $100.00 by December 2025 [4][13]. Core Insights - The report highlights that Vertiv has shown stronger than expected orders and backlog, which supports a positive outlook for the stock. The guidance for 2025 has been reaffirmed, indicating robust demand driven by AI and data center investments [1][7]. - The company reported an adjusted EPS of $0.64, exceeding both the internal estimate and street expectations, alongside a significant year-over-year organic sales growth of 25% [2][11]. - The report emphasizes the strong competitive positioning of Vertiv in the data center market, with a focus on the company's ability to capture market share and improve margins despite tariff-related challenges [7][13]. Summary by Sections Financial Performance - Vertiv's 1Q25 sales reached $2.036 billion, surpassing estimates and reflecting a 4.3% increase compared to expectations. Organic sales growth was particularly strong in North America (+29%) and APAC (+36%) [2][11]. - Adjusted operating profit (AOP) was reported at $337 million, slightly below estimates, with margins at 16.5%, impacted by tariffs [2][11]. Guidance and Outlook - The 2025 sales guidance has been increased to a range of $9.325-9.575 billion, reflecting an organic growth expectation of 16.5-19.5% [2][13]. - The report outlines a positive outlook for 2Q25, with expected organic sales growth of approximately 21% and total revenues projected between $2.325-2.375 billion [2][11]. Market Position and Strategy - Vertiv is positioned as a leading supplier in the data center market, benefiting from strategic changes since becoming independent in 2017. The company aims for sustained share gains and margin improvements [13][14]. - The report notes that the company is actively managing tariff impacts and has a robust orders pipeline, indicating continued demand strength [3][6][7].

Investment Rating - The report assigns an "Overweight" rating to Amphenol [4] Core Insights - Amphenol reported 1Q25 earnings significantly exceeding expectations, with revenues of $4,811 million, representing a 33% year-over-year organic growth and a total revenue growth of 48% year-over-year [1][6] - The operating margin reached a record 23.5%, surpassing both JP Morgan's estimate of 22.0% and the consensus of 21.7% [1][6] - For 2Q25, Amphenol is guiding revenues to $4.95 billion, indicating continued growth from the elevated revenue levels achieved in 1Q25, with an implied operating margin of 23.4% [2][7] Summary by Sections 1Q25 Results - Actual sales were $4,811 million, exceeding JP Morgan's estimate of $4,334 million by $477 million and the consensus by $575 million [6] - Gross profit was $1,705 million, with a margin of 35.4%, compared to JP Morgan's estimate of 35.0% [6] - Operating profit was $1,130 million, with a margin of 23.5%, exceeding estimates [6] - Net income reached $800 million, with an EPS of $0.63, surpassing both JP Morgan's estimate and consensus [6] 2Q25 Guidance - The company guides sales for 2Q25 at $4,950 million, which is above JP Morgan's estimate of $4,607 million [7] - Implied operating income is projected at $1,160 million, with an implied operating margin of 23.4% [7] - EPS for 2Q25 is guided at $0.65, exceeding JP Morgan's estimate of $0.57 [7]

Investment Rating - The report maintains an "Overweight" (OW) rating on Yangjie Technology and StarPower Semiconductor, while it is "Equal-weight" (EW) on Silan Micro and "Underweight" (UW) on CR Micro [6][5][12]. Core Insights - Power semiconductor pricing has stabilized, but discounts to end customers will impact gross margins in 1Q25. Companies with higher automotive exposure and better operational efficiency are favored [1][5]. - Power discrete sales have shown signs of recovery, with a 10% year-over-year shipment growth recorded in February 2025. The blended average selling price (ASP) of IGBT is stabilizing, indicating a potential recovery in this segment [2][15]. - Chinese power semiconductor companies are capitalizing on automotive opportunities, with Yangjie Technology's automotive product sales growing over 60% in 2024, significantly outpacing its total revenue growth of 12% [3][5]. - SICC has increased its global market share in SiC substrates to 22.8% in 2024, and there are expectations for further growth in SiC devices due to local self-sufficiency being less than 10% [4][12]. Summary by Sections Pricing and Margins - Power semiconductor pricing has largely stabilized, but normal price discounts will affect gross margins in 1Q25 [1]. - StarPower's gross margin is expected to be the lowest quarterly level this year, with gradual improvement anticipated for the rest of the year [2][10]. Company Performance - Yangjie Technology is expected to see an 18% year-over-year revenue increase in 1Q25, although a 3% quarter-over-quarter decline is anticipated due to seasonality [11]. - StarPower's revenue is projected to grow by 19% in 2025, driven by strong demand in the Chinese EV market and its acquisition of MSCT [10][12]. - SICC's revenue is expected to decline by 6% quarter-over-quarter in 1Q25 due to seasonal factors, but gross margins are anticipated to remain stable [10]. Market Trends - The automotive sector is a significant growth driver for power semiconductors, with companies like Yangjie showcasing their automotive solutions at major trade fairs [3]. - The global market for SiC devices is expected to grow, with local players like UNT and Silan Micro making strides in production capacity [4]. Price Target Adjustments - Price targets for StarPower and SICC have been lowered to Rmb115 and Rmb77, respectively, reflecting changes in market conditions and pricing pressures [6][12].

Investment Rating - The report indicates a favorable outlook for small molecule exposure within the biotech sector, suggesting a positive investment rating for companies focusing on this area [2]. Core Insights - The report highlights the impact of recent FDA changes on small and mid-cap biotech companies, emphasizing the importance of maintaining interactions with the FDA despite potential delays due to organizational restructuring [12][21]. - There is a noted preference for New Drug Applications (NDAs) over Biologics License Applications (BLAs) due to faster approval timelines, which could mitigate risks associated with staff shortages at the FDA [26][29]. - The FDA's accelerated approval pathway is seen as a critical mechanism for advancing drugs that address unmet medical needs, with ongoing confirmatory studies required post-approval [30][31]. Summary by Sections Biotech Policy - The report discusses changes in FDA policies and their implications for biotech companies, particularly regarding drug approval processes and interactions with the agency [4][11]. Macro to Micro - It covers macroeconomic factors affecting the biotech sector, including funding environments and stock positioning, with a focus on preferred exposures [4][20]. Capital Markets - The financing environment for biotech companies is analyzed, highlighting trends in IPOs and venture capital investments, which are crucial for sustaining growth in the sector [5][27]. Catalyst Calendars - A detailed calendar of upcoming FDA decision dates and key healthcare industry events is provided, which is essential for tracking potential catalysts for stock movements [4][6]. Ownership Peer Analysis - The report includes an analysis of ownership trends among biotech companies, based on 13F filings, which can provide insights into institutional investment patterns [4][30].