Group 1: Convertible Bond Market - The convertible bond market valuation is at a historical extreme level, with a pricing deviation indicator of 12.83% as of January 16, 2026, placing it in the 99.9th percentile since 2018 and 2021 [5][6] - The short-term drivers for the elevated valuation include a strong performance in the equity market, which has led to rising convertible bond prices and premium rates, and an influx of funds driven by demand for rights assets [5] - The current valuation is considered high, increasing systemic vulnerability, and investors are advised to be cautious and avoid high-priced and high-premium varieties, focusing instead on the sustainability of the underlying stock fundamentals [5][6] Group 2: Electric Power Equipment Industry - The electric power equipment sector is projected to focus on AIDC (Artificial Intelligence Data Center) and electricity shortages as core investment themes for 2026 [7][8] - The sector has outperformed the market, with a cumulative increase of 33.6% compared to a 17.7% rise in the CSI 300 index as of December 31, 2025 [8] - Investment recommendations include companies like Zhongheng Electric, Kehua Data, and Keda, which are expected to benefit from the growing demand for HVDC (High Voltage Direct Current) solutions and the global electricity construction backdrop [8] Group 3: Real Estate Market - The real estate market is experiencing a decline, with new home sales down 12.6% year-on-year, and related development investment indicators showing accelerated declines [9] - Predictions for 2026 include a 10% decrease in new construction area to 530 million square meters and a 10.9% drop in real estate development investment to 7.57 trillion yuan [9] - The report maintains an "overweight" rating for the sector, emphasizing the importance of policy support and the potential for recovery in specific urban markets, particularly first-tier and select second-tier cities [9] Group 4: Textile and Apparel Industry - Chow Tai Fook reported a 17.8% year-on-year increase in retail value for FY2026 Q3, indicating strong same-store sales growth [11][13] - The company is focusing on optimizing product design and channel operations, which is expected to enhance consumer engagement [13] - Profit forecasts for FY2026 to FY2028 project net profits of 7.575 billion, 8.559 billion, and 9.646 billion HKD respectively, with a PE ratio of 18 times for FY2026, maintaining a "buy" rating [13]

Investment Rating - The report maintains an "Overweight" rating for the real estate sector [4][6]. Core Insights - The real estate development investment in 2025 saw a significant decline, with a cumulative year-on-year decrease of 17.2%, indicating a continued downward trend in related indicators [12][13]. - The new housing market remained sluggish, with a sales amount decrease of 12.6% and a sales area decrease of 8.7% in 2025, with residential sales experiencing a larger decline compared to other segments [34][41]. - The funding situation for real estate companies worsened, with a cumulative year-on-year decrease of 13.4% in funds available, primarily due to declines in personal mortgage loans and pre-sale deposits [51][58]. Summary by Sections 1. Real Estate Development Investment - In 2025, the total real estate development investment was 82,788 billion yuan, down 17.2% year-on-year [2][13]. - The investment in residential, office, and commercial properties was 63,514 billion, 3,203 billion, and 5,947 billion yuan, respectively, with year-on-year changes of -16.3%, -22.8%, and -14.0% [22]. 2. New Construction - The cumulative new construction area for 2025 was 58,770 million square meters, a decrease of 20.4% year-on-year [27]. - The new construction areas for residential, office, and commercial properties were 42,984 million, 1,471 million, and 3,805 million square meters, with year-on-year changes of -19.8%, -21.9%, and -23.5% [27]. 3. Completion - The total completion area for 2025 was 60,348 million square meters, down 18.1% year-on-year [29]. - The completion areas for residential, office, and commercial properties were 42,830 million, 2,071 million, and 4,259 million square meters, with year-on-year changes of -20.2%, 6.7%, and -12.9% [29]. 4. Sales Performance - The total sales amount for commercial housing in 2025 was 83,937 billion yuan, a decrease of 12.6% year-on-year, while the sales area was 88,101 million square meters, down 8.7% [34][41]. - The average sales price for commercial housing was 9,527 yuan per square meter, reflecting a year-on-year decrease of 4.1% [46]. 5. Funding Situation - The total funds available for real estate companies in 2025 were 93,117 billion yuan, down 13.4% year-on-year [51]. - Major sources of funding such as domestic loans, foreign investment, self-raised funds, pre-sale deposits, and personal mortgage loans saw year-on-year declines of -7.3%, -20.8%, -12.2%, -16.2%, and -17.8%, respectively [51][58].

Core Insights - The report identifies AIDC (Artificial Intelligence Data Center) and power shortages as the main investment themes for 2026, with the power equipment sector significantly outperforming the market in 2025, rising by 33.6% compared to a 17.7% increase in the CSI 300 index [1][10]. - The demand for power in data centers is expected to surge, with projections indicating that by 2035, the electricity demand from U.S. data centers will increase from 200 TWh to 640 TWh, equivalent to Germany's total annual electricity consumption [2][49]. Group 1: AIDC and HVDC Opportunities - The UPS market is steadily growing, and the HVDC (High Voltage Direct Current) solutions are seen as a definitive industry trend, with SST (Solid State Transformer) compatible with 800V HVDC expected to accelerate implementation [1][20]. - BCG consulting forecasts that by 2028, the power demand for data centers will reach 81GW in the U.S. and 125GW globally, driven by the increasing AI computing needs [29][32]. Group 2: U.S. Power Shortages and Market Dynamics - The U.S. is facing a critical power shortage, with many transmission lines over 40 years old, necessitating urgent upgrades and renovations to the grid [2][48]. - The report highlights that the demand for gas turbines and transformers is expected to rise due to the urgent need for power infrastructure improvements in the U.S. [3][50]. Group 3: Investment Recommendations - The report recommends focusing on companies like Zhongheng Electric and Kehua Data in the HVDC space, as well as Jinpan Technology and Igor in the transformer sector, due to the anticipated growth in global power infrastructure [3][58]. - The gas turbine market is also highlighted, with major manufacturers' orders extending to 2028, indicating strong demand for components such as turbine blades and combustion chambers [3][52]. Group 4: Diesel Generator Market - The diesel generator market for data centers is transitioning to a seller's market, with domestic manufacturers poised to replace foreign brands due to supply constraints and increasing demand [56][57]. - The global market for data center diesel generators is projected to grow from $6 billion in 2023 to $12 billion by 2030, driven by the rapid expansion of data centers and AI infrastructure [56][57].

Investment Rating - The report maintains a "Buy" rating for Chow Tai Fook [5] Core Insights - Chow Tai Fook reported a significant increase in retail value for FY2026Q3, with a year-on-year growth of 17.8%, indicating a strong acceleration compared to Q2. Retail values in mainland China, Hong Kong, Macau, and other markets grew by 16.9%, 22.9%, and other respective figures [1] - The company is actively optimizing its product and channel strategies, with a focus on enhancing store performance and e-commerce growth. The same-store sales in mainland China increased by 21.4% for direct stores and 26.3% for franchise stores [1][2] - The e-commerce segment saw a robust growth of 25.3%, driven by promotional events and successful IP collaborations, contributing to 7.4% of mainland retail value and 17.0% of sales volume [1] Financial Performance - For FY2026, Chow Tai Fook is expected to achieve a revenue growth of 3.8% to HKD 93.03 billion, with a net profit growth of 28.1% to HKD 7.575 billion. The projected earnings per share (EPS) for FY2026 is HKD 0.77 [2][4] - The company’s net profit forecasts for FY2026 to FY2028 are HKD 7.575 billion, HKD 8.559 billion, and HKD 9.646 billion, respectively, with a corresponding price-to-earnings (P/E) ratio of 18 times for FY2026 [2][4] - The average selling price of gold jewelry in mainland China increased significantly, with a year-on-year rise of 51% for priced gold jewelry and 83% for standard gold jewelry, positively impacting sales [1][8] Market Expansion - Chow Tai Fook is pursuing global expansion, with notable performance in Macau, where same-store sales grew by 31.3%. The company is also optimizing its store network in mature markets while entering new potential markets [2][4]

- The report introduces a valuation deviation model for convertible bonds, defined as "Pricing Deviation = Convertible Bond Price / CCBA Model Pricing - 1", which measures the valuation level of the convertible bond market. As of January 16, 2026, the pricing deviation indicator reached 12.83%, placing it at the 99.9th percentile since 2018 and 2021, indicating historically high valuation levels[6][10][15] - A rotation strategy between convertible bonds and a stock-bond portfolio is constructed based on the pricing deviation model. The Z-score is calculated as "Z = Pricing Deviation / 3-Year Standard Deviation", truncated at ±1.5 standard deviations, and then divided by -1.5 to derive a score. Convertible bond weight is determined as "50% + 50% × Score", with the remaining allocation to the stock-bond portfolio. This strategy achieves stable excess returns during periods of undervaluation in the convertible bond market[10][13][14] - A low-valuation strategy is developed using the CCB_out pricing model, which incorporates delisting risk. The pricing deviation is calculated as "Pricing Deviation = Convertible Bond Price / CCB_out Model Pricing - 1". The strategy selects the 15 convertible bonds with the lowest deviation in each of the biased-debt, balanced, and biased-equity categories, forming a pool of 45 bonds. The strategy achieves an annualized return of 20.8% and an excess return of 8.9% since 2018[21][23][24] - A low-valuation + strong momentum strategy combines the pricing deviation factor with a stock momentum factor, using equal-weighted scores of stock momentum over the past 1, 3, and 6 months. This strategy achieves an annualized return of 24.7% and an excess return of 12.4% since 2018[24][26][27] - A low-valuation + high-turnover strategy selects the lowest 50% of convertible bonds based on pricing deviation and further filters for high turnover using turnover rate factors (5-day and 21-day turnover rates for both convertible bonds and stocks). This strategy achieves an annualized return of 23.7% and an excess return of 11.5% since 2018[27][28][30] - A balanced biased-debt enhanced strategy selects the lowest 50% of convertible bonds based on pricing deviation, excluding biased-equity bonds. It applies turnover rate and stock momentum factors for biased-debt bonds and turnover rate factors for balanced bonds. This strategy achieves an annualized return of 22.6% since 2018, with a return of 16.7% in 2023[30][32][33] - A credit bond substitution strategy screens convertible bonds where "Convertible Bond YTM + 1% > 3-Year AA Credit Bond YTM". The strategy selects the top 20 convertible bonds with the strongest 1-month stock momentum, limits individual bond weights to 2%, and allocates the remaining portfolio to credit bonds. This strategy achieves an annualized return of 7.1% since 2018, with volatility and drawdowns below 3%[33][34][35] - A volatility control strategy selects the top 15 convertible bonds with the highest scores in low-valuation + strong momentum across biased-debt, balanced, and biased-equity categories, forming three enhanced strategies. It combines these with credit bonds and controls portfolio volatility at 4%. This strategy achieves an annualized return of 9.6% since 2018, with volatility and drawdowns around 4%-5%[35][36][38]

Investment Rating - The report maintains a "Buy" rating for Chow Tai Fook [5] Core Insights - Chow Tai Fook reported a significant acceleration in retail value growth for FY2026Q3, with a year-on-year increase of 17.8%. Retail values in mainland China, Hong Kong, Macau, and other markets grew by 16.9%, 22.9%, and 14.3% respectively, indicating an improving jewelry consumption atmosphere [1][2] - The company is actively optimizing its product and channel strategies, with a focus on enhancing store performance and expanding e-commerce. The same-store sales in mainland China increased by 21.4% for direct stores and 26.3% for franchise stores, benefiting from strong e-commerce growth [1][2] - Chow Tai Fook's e-commerce business saw a retail value increase of 25.3%, accounting for 7.4% of mainland retail value and 17.0% of sales volume, driven by successful promotional events and IP collaborations [1] Financial Performance - For FY2026, Chow Tai Fook is expected to achieve a revenue growth of 3.8% to HKD 93.03 billion and a net profit growth of 28.1% to HKD 7.575 billion. The projected earnings per share (EPS) for FY2026 is HKD 0.77, with a price-to-earnings (P/E) ratio of 18 times [2][4] - The company anticipates continued revenue growth of 4% in FY2026, with net profit expected to reach HKD 8.559 billion in FY2027 and HKD 9.646 billion in FY2028 [2][4] Market Expansion - Chow Tai Fook is pursuing global expansion, focusing on optimizing channels in mature markets while gradually entering new markets with growth potential. The company reported a 22.9% increase in retail value in Hong Kong, with Macau showing a remarkable growth of 31.3% [2][4]

Quantitative Models and Construction Methods 1. Model Name: CCBA Pricing Deviation Model - **Model Construction Idea**: The model measures the valuation level of convertible bonds by calculating the pricing deviation, which reflects the difference between the market price and the theoretical price derived from the CCBA model[6] - **Model Construction Process**: The pricing deviation is calculated as: $ \text{Pricing Deviation} = \frac{\text{Convertible Bond Price}}{\text{CCBA Model Price}} - 1 $ This formula evaluates how much the market price deviates from the theoretical price. The CCBA model incorporates factors such as redemption probability adjustments[6][10] - **Model Evaluation**: The model effectively identifies valuation extremes in the convertible bond market, providing insights into market sentiment and potential risks[6][7] 2. Model Name: Convertible Bond & Stock-Bond Rotation Strategy - **Model Construction Idea**: This model uses the pricing deviation to determine the relative attractiveness of convertible bonds versus a stock-bond portfolio, enabling rotation between the two asset classes[10] - **Model Construction Process**: 1. Calculate the Z-score of the pricing deviation: $ Z = \frac{\text{Pricing Deviation}}{\text{3-Year Standard Deviation}} $ 2. Apply a ±1.5 standard deviation cap to the Z-score and normalize it: $ \text{Score} = \frac{Z}{-1.5} $ 3. Determine the convertible bond weight: $ \text{Convertible Bond Weight} = 50\% + 50\% \times \text{Score} $ 4. Allocate the remaining weight to the stock-bond portfolio (50% 7-10Y Treasury + 50% CSI 1000 Total Return Index)[10] - **Model Evaluation**: The strategy demonstrates stable excess returns by dynamically adjusting allocations based on valuation levels[10][13] 3. Model Name: Low Valuation Strategy - **Model Construction Idea**: This strategy selects convertible bonds with the lowest pricing deviation to construct a portfolio, aiming to capture undervalued opportunities[21] - **Model Construction Process**: 1. Use the CCBA_out model (CCBA model adjusted for delisting risk) to calculate pricing deviation: $ \text{Pricing Deviation} = \frac{\text{Convertible Bond Price}}{\text{CCBA_out Model Price}} - 1 $ 2. Select the 15 convertible bonds with the lowest pricing deviation from each of the three market segments (debt-heavy, balanced, equity-heavy), forming a pool of 45 bonds 3. Ensure bonds meet criteria such as a balance of over 300 million and a rating of AA- or above 4. Overweight undervalued segments and underweight overvalued ones[21] - **Model Evaluation**: The strategy achieves strong absolute and excess returns with high stability, even during challenging market conditions[21][24] 4. Model Name: Low Valuation + Strong Momentum Strategy - **Model Construction Idea**: Combines pricing deviation with stock momentum factors to enhance portfolio elasticity and returns[23] - **Model Construction Process**: 1. Use the pricing deviation factor from the CCBA_out model 2. Incorporate stock momentum factors based on the past 1, 3, and 6 months' momentum scores 3. Construct a portfolio by selecting bonds with strong momentum and low valuation[23] - **Model Evaluation**: The strategy delivers higher absolute and excess returns, with increased sensitivity to market trends[23][27] 5. Model Name: Low Valuation + High Turnover Strategy - **Model Construction Idea**: Focuses on convertible bonds with low valuation and high trading activity to capture liquidity-driven opportunities[27] - **Model Construction Process**: 1. Select the bottom 50% of convertible bonds based on pricing deviation 2. Within this pool, prioritize bonds with high turnover using metrics such as: - Convertible bond turnover rate (5-day and 21-day) - Ratio of convertible bond turnover to stock turnover (5-day and 21-day) 3. Construct the portfolio based on these criteria[27][30] - **Model Evaluation**: The strategy achieves robust absolute and excess returns, particularly in liquid market conditions[27][30] 6. Model Name: Balanced Debt-Enhanced Strategy - **Model Construction Idea**: Enhances returns by combining low valuation, turnover, and momentum factors, while excluding equity-heavy bonds[30] - **Model Construction Process**: 1. Select the bottom 50% of convertible bonds based on pricing deviation 2. Exclude equity-heavy bonds to form a debt-heavy pool 3. Apply turnover and momentum factors to the debt-heavy pool 4. For balanced bonds, use turnover factors only[30][33] - **Model Evaluation**: The strategy achieves high absolute returns with controlled volatility and drawdowns, making it suitable for risk-averse investors[30][33] 7. Model Name: Credit Bond Substitution Strategy - **Model Construction Idea**: Replaces convertible bonds with credit bonds when the yield-to-maturity (YTM) of convertible bonds exceeds that of 3-year AA-rated credit bonds by 1%[33] - **Model Construction Process**: 1. Screen convertible bonds with: $ \text{Convertible Bond YTM} + 1\% > \text{3-Year AA Credit Bond YTM} $ 2. Select the top 20 bonds with the highest 1-month stock momentum for allocation 3. Limit individual bond weight to a maximum of 2% 4. Use volatility control methods to reduce short-term drawdowns and allocate remaining weight to credit bonds[33][35] - **Model Evaluation**: The strategy achieves moderate absolute returns with low volatility and drawdowns, making it suitable for conservative investors[33][35] 8. Model Name: Volatility Control Strategy - **Model Construction Idea**: Combines low valuation and strong momentum factors with volatility control to maintain portfolio stability[35] - **Model Construction Process**: 1. Select the top 15 convertible bonds with the highest combined scores of low valuation and strong momentum from each market segment (debt-heavy, balanced, equity-heavy) 2. Combine these enhanced strategies with credit bonds 3. Use volatility control methods to cap portfolio volatility at 4%[35][38] - **Model Evaluation**: The strategy achieves stable absolute returns with low volatility and drawdowns, making it suitable for risk-averse investors[35][38] --- Model Backtest Results 1. CCBA Pricing Deviation Model - Pricing deviation as of January 16, 2026: 12.83%, at the 99.9th percentile since 2018 and 2021[6][10] 2. Convertible Bond & Stock-Bond Rotation Strategy - Current convertible bond premium: 12.83%[10] 3. Low Valuation Strategy - Annualized return: 20.8% - Excess return: 8.9% - Information ratio (IR): 1.51[24] 4. Low Valuation + Strong Momentum Strategy - Annualized return: 24.7% - Excess return: 12.4% - IR: 2.15[27] 5. Low Valuation + High Turnover Strategy - Annualized return: 23.7% - Excess return: 11.5% - IR: 1.85[30] 6. Balanced Debt-Enhanced Strategy - Annualized return: 22.6% - Volatility: 12.1% - Maximum drawdown: 13.9%[33] 7. Credit Bond Substitution Strategy - Annualized return: 7.1% - Volatility: <3% - Maximum drawdown: <3%[35] 8. Volatility Control Strategy - Annualized return: 9.6% - Volatility: 4.4% - Maximum drawdown: 4.4%[38]

Group 1: Market Overview - The report highlights a recent increase in consumer prices, with the Consumer Price Index (CPI) rising for four consecutive months, reaching its highest level since March 2023 [2][3] - The Producer Price Index (PPI) has shown a narrowing decline, with month-on-month increases for five consecutive months, indicating a potential shift in inflation dynamics [2][3] Group 2: Pet Industry Insights - The pet industry is projected to grow by 4.1% in market size by 2025, driven by an increase in pet ownership and spending per pet [4][5] - The number of dogs and cats is expected to rise by 1.8%, with average annual spending on dogs increasing by 1.5% and on cats by 3.2% [4] - The trend towards younger pet ownership is identified as a key driver for high-quality growth in the industry [4] Group 3: Consumer Behavior and Trends - There is a notable shift towards scientific feeding practices among pet owners, with 55.3% expressing a willingness to learn about proper nutrition [6] - The preference for wet food is increasing, with significant growth in various categories such as cat treats and dog food, indicating a trend towards premium pet products [6][7] - The demand for specialized pet food for different life stages and sizes is rising, particularly for senior and small breed dogs, reflecting a more tailored approach to pet care [7] Group 4: Company-Specific Analysis - Li Ning - Li Ning has entered a new product and marketing cycle following its signing with the Olympic Committee, which is expected to enhance brand strength [8][9] - The demand for sports footwear remains resilient, with a growing trend towards diversification and specialization in the market [8] - The company is projected to see a rebound in net profit from 27.42 billion to 33.02 billion from 2025 to 2027, with a corresponding increase in earnings growth rates [9]

Investment Rating - The report maintains a "Buy" rating for Li Ning [6] Core Insights - The signing of the Chinese Olympic Committee in the first half of 2025 marks the beginning of a new product and marketing cycle for Li Ning, with expectations for improved performance and stock price recovery in the medium to long term [1][14] - The company has faced pressure on its fundamentals due to fluctuations in the consumer environment, with a reported revenue of 14.8 billion yuan and a net profit of 1.7 billion yuan in the first half of 2025, reflecting a year-on-year change of +3.3% and -11% respectively [1][15] - The sportswear market is expected to grow, with the Chinese sports apparel market projected to reach 260.2 billion yuan by 2024, and a CAGR of 9% from 2025 to 2029 [2] Company Overview - Li Ning's short-term operations are experiencing fluctuations, but the fundamentals are expected to improve. The company has seen a decline in revenue and net profit since 2022, with a forecasted revenue of 28.7 billion yuan and a net profit of 3 billion yuan for 2024 [15] - The revenue structure is primarily wholesale, with 46% from wholesale, 23% from direct sales, and 29% from e-commerce as of the first half of 2025 [15] Industry Trends - The demand for sports footwear and apparel among residents is resilient, with increasing participation in sports leading to a diversified and professionalized market [2] - The report highlights the importance of the Olympic cycle in enhancing brand strength and increasing sponsorship in niche categories [2] Competitive Positioning - Li Ning is focusing on product optimization and enhancing brand strength during the Olympic cycle, with a significant increase in sponsorship for running and basketball categories [3] - The company is also expanding its outdoor product offerings and enhancing the diversity of its store inventory to drive revenue growth [3] Financial Forecast and Investment Recommendations - The forecast for net profit from 2025 to 2027 is 2.742 billion yuan, 2.901 billion yuan, and 3.302 billion yuan respectively, with growth rates of -9%, +5.8%, and +13.8% [4] - The current market capitalization corresponds to a PE ratio of 17 times for 2026, indicating potential for valuation improvement as the company's marketing strategies and product optimizations take effect [4]

Investment Rating - The report maintains an "Accumulate" rating for the pet industry [4] Core Insights - The pet industry is expected to grow at a rate of 4.1% in 2025, marking a transition to high-quality growth, with the market size reaching 312.6 billion yuan [9][10] - The number of pet dogs and cats is increasing, with a year-on-year growth of 1.8%, and the average annual spending per dog and cat is also rising [10][14] - The trend of younger pet owners is driving the industry towards high-quality development, with 90s and 00s generations becoming the main consumer groups [14] Summary by Sections 1. Industry Scale - The pet industry market size is projected to reach 312.6 billion yuan in 2025, growing by 4.1% compared to 2024 [9] - The dog market is expected to reach 160.6 billion yuan, while the cat market is projected to reach 152.0 billion yuan, with respective growth rates of 3.2% and 5.2% [9] - By 2028, the market size is anticipated to reach 405.0 billion yuan [9] 2. Market Dynamics - The market is characterized by a "stronger getting stronger" trend, with domestic brands gaining market share [20] - In the 2025 Double Eleven shopping festival, domestic brands accounted for over 70% of the market share, and the top 10 brands on Tmall reached a concentration ratio of 44% [20] - Online channels, particularly Tmall, remain the largest market, accounting for 29% of the total market share, while offline channels like pet stores and hospitals account for 33% [22] 3. Trends - There is a significant shift towards scientific feeding practices, with 55.3% of pet owners willing to learn about scientific feeding methods [40] - The trend of wet food consumption is accelerating, with notable growth in various categories such as cat freeze-dried food and dog baked food [40] - The demand for specialized pet food for different life stages and sizes is increasing, particularly for senior dogs, which saw a sales increase of 67% in 2024 [45]