Investment Rating - The report upgrades ZTE Corporation (H/A) to Buy from Neutral with new price objectives of HK$32 for H shares and CNY45 for A shares [1][15][17]. Core Insights - ZTE's server business is expected to see robust expansion in 2024, driven by increased orders from Chinese telecom companies and cloud service providers (CSPs) [1][12][43]. - Despite potential near-term earnings pressure due to a soft carrier business, ZTE is positioned for a re-rating based on a positive outlook for China's Internet Data Centers (IDCs), share gain potential amid rising server demand, and its in-house CPU capabilities [1][12][15]. - The valuation of ZTE is supported by a re-rating of China IDC names, reflecting the market's growing confidence in server demand, particularly with the acceleration of AI applications [16][17]. Summary by Sections Investment Rating Changes - ZTE-H's price objective is raised to HK$32 from HK$21, and ZTE-A's price objective is lifted to CNY45 from CNY31 [3][17]. - The report reflects a change in earnings estimates for 2025-26, with a reduction of 12-17% due to margin pressures [17][18]. Financial Performance - ZTE's server sales nearly doubled year-on-year to CNY10 billion in 2024, representing an 8% mix, primarily due to breakthroughs with major CSPs [2][43]. - The company is expected to maintain robust growth into 2025-26, supported by strong capital expenditures from CSPs and a focus on data centers by Chinese telecoms [2][43]. Valuation Metrics - The report indicates that ZTE-H/ZTE-A trades at a discount compared to other Chinese server peers, with a current P/E of 13x for 2026E [1][32]. - The valuation gap between ZTE-A and ZTE-H has become volatile, suggesting that historical valuation trends may be more suitable for assessing ZTE-A's value [17][32].

Investment Rating - The report highlights a "Buy" rating for Kingsoft Corp and Agora in the software sector, as well as VNET and GDS in the data center space [1][18]. Core Insights - The launch of the AI agent "Manus" marks a significant advancement in AI technology, transitioning from traditional large language models (LLMs) to more autonomous AI agents capable of independent thinking and complex task execution [1][2]. - Manus has demonstrated superior performance in benchmark tests compared to OpenAI's DeepResearch, indicating strong technological capabilities [2][10]. - The introduction of Manus is expected to accelerate the development and application of AI agents, leading to increased demand for AI computing power and fostering innovation in software products, particularly in office software, ERP, and financial software [1][3]. Summary by Sections Industry Overview - Manus, developed by Butterfly Effect HK Limited, is the first general AI agent capable of planning and executing tasks independently, outperforming existing LLMs [1][2]. - The report anticipates a shift in the industry towards more sophisticated AI applications, which will require enhanced AI computing resources [1][3]. Product Innovation - The capabilities of Manus suggest that Chinese software companies can innovate their product offerings, particularly in ERP and office automation sectors [3]. - Companies like Kingdee and Yonyou are already integrating AI agents into their products, which could lead to enhanced user experiences and operational efficiencies [3]. Company Analysis - Kingsoft Corp is highlighted for its potential in AI-powered office software, with a projected price objective of HK$53 based on a 30x forward P/E ratio [23]. - Agora is noted for its growth potential, with a price objective of US$7.1 based on a 5x forward estimated P/S ratio [19]. - GDS Holdings has a price objective of US$49.3, reflecting a strong growth outlook for its domestic and international business segments [21]. - VNET Group is projected to have a price objective of US$14.5, based on a 14x forward estimated EV/EBITDA [25].