Industry Overview - Ajinomoto holds nearly 100% of the global PC insulation film market, making its ABF material performance a strong indicator of the ABF substrate industry's prosperity [2][7] - ABF substrate demand is primarily driven by PCs, servers, and network applications, with AI-related products emerging as a key growth driver [4][9] Company Performance - Ajinomoto's FY2024 Q2 revenue reached 378.7 billion JPY, an 8% YoY increase, with commercial profit at 43.8 billion JPY, up 30% YoY [2][7] - Electronic materials (ABF) revenue grew 32% YoY to 19.8 billion JPY, with commercial profit surging 49% YoY to 10.3 billion JPY [2][7] Revenue Forecast - Ajinomoto raised its FY2024 electronic materials revenue forecast from 69.1 billion JPY to 74.6 billion JPY, representing a 22% YoY increase [3][8] - The revised forecast potentially surpasses FY2022's record high, indicating strong market recovery [3][8] Market Trends - AI server adoption created a "crowding out effect" on general servers in 2023, impacting ABF substrate demand [4][9] - Cloud providers' increased capital expenditure in 2024 and expected growth in 2025 are driving recovery in high-performance computing servers [4][9] - The easing of AI's "crowding out effect" on general servers suggests a balanced growth trajectory for ABF substrate demand [4][9] Investment Focus - Fastprint Circuit Tech is identified as a company to watch in the ABF substrate industry [10]

Investment Rating - The report does not explicitly state an investment rating for the industry or specific companies Core Insights - The report highlights the "Pangdonglai phenomenon," emphasizing extreme product quality, customer experience, and corporate culture as key drivers of success [3][6][7] - It discusses the importance of supply chain efficiency and mechanisms in transforming retail operations, with examples from companies like Yonghui Supermarket and Costco [9][11][17] - The future of Chinese supermarkets is projected to focus on returning to retail fundamentals and expanding into new markets [48] Summary by Sections 1. Phenomenon and Essence - Pangdonglai ranked 46th in the 2023 China Chain Top 100 with sales of 10.7 billion yuan, expecting to exceed 15 billion yuan in 2024, a 40% year-on-year increase [3] - The report details Pangdonglai's extensive product offerings (10,000-15,000 SKUs) and its unique procurement model, which includes a significant proportion of self-sourced products [6] - The company invests heavily in logistics and supply chain management, with a 1.5 billion yuan logistics park to enhance efficiency [6] 2. Overseas Lessons: Efficiency Wins - Costco's membership fee revenue reached $4.83 billion in FY2024, a 5.4% increase, while net profit grew by 17.1% to $7.37 billion [17][20] - The report notes that Costco's business model focuses on consumer value, with profits primarily derived from membership fees rather than traditional retail margins [24] - Sam's Club in China has been expanding its store count, with a net increase of 16 stores from 2021 to 2024, contributing to Walmart China's revenue growth [31][38] 3. The Future of Chinese Supermarkets - The Chinese supermarket industry is projected to grow to approximately 3 trillion yuan in 2023, with a year-on-year growth rate of 3.16% [48] - The report indicates that the industry faces challenges from increased competition and a slowdown in growth, with a focus on improving operational efficiency as a key to success [48]

Policy Changes - Since September 24, 2024, a series of policy announcements have been made to address key market concerns, focusing on repairing household balance sheets and stimulating demand across various sectors[3] - The central bank has lowered the reserve requirement ratio by 0.5 percentage points and reduced the 7-day reverse repurchase rate by 0.2 percentage points[4] - A total of 10 trillion yuan has been allocated to increase local government debt limits to address hidden debts[4] Market Sentiment - Market sentiment has significantly improved since September 24, with the weekly turnover rate rising from a low of 214% to 656%[9] - Net inflows from margin trading have exceeded 400 billion yuan, surpassing the peak levels seen during the 2021 bull market[9] Long-term Outlook - The current risk premium for A-shares stands at 3.4%, placing it in the 22nd percentile since 2005, indicating potential for future recovery[13] - A-share net profit growth is projected to reach 5-10% year-on-year by 2025, with GDP growth expected around 5%[35] Sector Performance - The technology sector is expected to outperform, with projected net profit growth rates of 30% and 35% for electronics in 2024 and 2025, respectively[39] - High dividend-paying assets are anticipated to provide absolute returns, with the overall dividend payout ratio in A-shares reaching 32.4% by the end of 2023[60]

Macroeconomic Outlook - China's GDP growth target for 2025 is expected to be around 5%, with short-term demand needing a boost[3] - Policy focus remains on high-quality development, with no large-scale stimulus expected, but gradual monetary and fiscal adjustments[2] - Fiscal deficit is projected to increase to around 3.5% in 2025, with special bond issuance likely to exceed 1 trillion yuan[35] Policy and Reform - Monetary policy will continue to adjust gradually, with potential for further deposit and interbank rate cuts[23] - Fiscal policy will focus on debt resolution, risk prevention, and stabilizing the economy, with a moderate increase in fiscal deficit[2] - Supply-side reforms are expected, particularly in industries with low capacity utilization and persistent losses[2] Real Estate and Consumption - Real estate sales and investment are expected to gradually bottom out and recover with policy support[3] - Consumer spending growth remains sluggish, with retail sales growing 3.3% year-to-date in 2024, down from 3.7% in Q2[43] - Improving household income and expectations are crucial for boosting consumption[47] External Trade and Risks - Exports are expected to remain supportive in 2025, but trade surplus may narrow, reducing net exports' contribution to GDP[3] - Risks include policy uncertainties, geopolitical tensions, and potential miscalculations in assumptions[3] Global Market and Asset Allocation - U.S. Treasury yields may face upward pressure if Trump's policies are implemented, increasing market volatility[3] - The dollar index is expected to remain strong, while the euro and yen may weaken[3] - Gold and gold-like assets are recommended for long-term investment due to global economic divergence and currency system changes[102] U.S. Policy Impact - Trump's potential policies, including tax cuts and tariffs, could increase U.S. fiscal deficits and inflation, impacting global markets[74] - U.S. corporate tax rates may be reduced from 21% to 15% for domestic production under Trump's proposals[74] - Tariff increases could lead to stagflationary pressures in the U.S., with potential GDP growth reduction and job losses[79]

Market Performance - Major global asset prices declined last week, with the Hang Seng Index leading the drop at 6.3%[1] - The S&P 500 and Nikkei 225 fell by 2.1% and 2.2% respectively[1] - COMEX copper and London gold prices decreased by 5.7% and 4.5% respectively[1] - The 10-year U.S. Treasury yield rose by 13 basis points to 4.43%[1] U.S. Economic Indicators - October U.S. CPI increased by 2.6% year-on-year, marking a 0.2 percentage point rise from September[16] - Core CPI remained stable at 3.3% year-on-year[16] - October PPI rose by 2.4% year-on-year, exceeding market expectations of 2.3%[16] - Retail sales in October grew by 2.6% year-on-year, with a month-on-month increase of 0.4%[19] Inflation Expectations - As of November 15, the 5-year inflation expectation in the U.S. was 2.39%, down 4 basis points from the previous week[22] - The 10-year inflation expectation decreased by 2 basis points to 2.33%[22] - Market expectations for a 25 basis point rate cut by the Federal Reserve in December decreased slightly from 64.6% to 61.9%[22] European Economic Trends - The Eurozone's industrial production index fell by 2.8% year-on-year in September, a decline of 2.7 percentage points from August[30] - Employment in the Eurozone saw a slight increase of 1.0% year-on-year in Q3[30] Monetary Policy Outlook - Federal Reserve officials indicated a cautious approach to rate cuts, suggesting a potential slowdown in the pace of future cuts[35] - The European Central Bank may consider a rate cut in December, with indications of a more neutral monetary policy stance[36] - The Bank of Japan is still observing the economic outlook before making any rate adjustments[36]

Investment Rating - The report suggests a positive outlook for the photovoltaic (PV) industry, indicating a turning point after a prolonged price decline, with a focus on quality and technology innovation [28]. Core Insights - The PV industry is at the bottom of its cycle, with signs of a turning point emerging. The industry has experienced a significant price decline over nearly two years, and there is a consensus to avoid price competition, emphasizing quality and technology [28][9]. - Domestic demand for PV is expected to grow steadily, supported by frequent government policies aimed at promoting renewable energy. The report highlights that the newly installed capacity in China reached 160.88 GW in the first three quarters of 2024, a year-on-year increase of 24.8% [12][13]. - New technologies are gaining support in bidding processes, which is expected to facilitate rapid promotion. The report notes that new technologies are being recognized for their efficiency and profitability, with significant bidding projects already underway [19][23]. Summary by Sections 1. PV Cycle Bottom and Turning Point Signals - The industry is recognized to be at the bottom of its cycle, with a sample of 52 PV companies showing a net profit of -28.11 billion yuan in Q2 2024, improving to 6.69 billion yuan in Q3 2024. The report indicates that polysilicon prices have stabilized, suggesting a potential recovery [4][6]. - The report emphasizes the importance of industry self-discipline, with multiple meetings held to address issues such as price competition and to promote advanced technology applications [6]. 2. PV Demand: Frequent Domestic Policies and Sustainable Growth - The report outlines several government initiatives aimed at supporting the renewable energy sector, including the 2024-2025 energy conservation and carbon reduction action plan, which provides a framework for achieving dual carbon goals [12][14]. - The report forecasts that domestic installed capacity will reach 250 GW in 2024 and 270 GW in 2025, reflecting a robust growth trajectory [14]. 3. New Technologies Supported by Bidding, Expected Rapid Promotion - New technologies are being supported in bidding processes, with significant projects like the Huaneng Group's procurement of 15 GW of PV components, which includes N-type, HJT, and BC technologies [19][20]. - The report anticipates that 2025 will be a critical year for the development of new technologies, particularly if production challenges can be overcome [23][24]. 4. Investment Recommendations - The report recommends focusing on leading companies at the bottom of the material price cycle, such as Tongwei Co., Longi Green Energy, and JinkoSolar, among others. It also highlights growth opportunities in inverter and energy storage sectors [28].

Investment Rating - The report suggests a focus on companies in the lithium battery supply chain that have pricing elasticity and cost differentiation capabilities, particularly in the midstream sector [2]. Core Insights - The report indicates that 2025 marks the beginning of a new cycle for lithium batteries, with expectations of supply-demand balance restoration and profitability recovery in the sector [2]. - The report highlights continuous innovation in lithium battery technologies, including solid-state and sodium batteries, which are expected to create investment opportunities [2]. - The report emphasizes the significant growth potential in the charging station market, particularly in Europe and the U.S., where there is a substantial gap in public charging infrastructure [4]. - The report notes that the energy storage market is experiencing high growth in both domestic and U.S. markets, with expectations of continued demand in 2025 [6]. - The hydrogen energy sector is projected to maintain high demand for alkaline electrolyzers, while the fuel cell vehicle market faces challenges in meeting targets [8]. Summary by Sections Lithium Battery Sector - The report anticipates a recovery in profitability and a restoration of supply-demand balance in the lithium battery sector by 2025, driven by increased production capacity and pricing flexibility among leading companies [2]. - Key companies to watch include CATL, EVE Energy, and others that are positioned well in the midstream supply chain [2]. Charging Infrastructure - The report highlights the significant growth in public charging stations in the U.S. and Europe, with growth rates of 48.6% and 24.0% respectively in 2023 and 2024 [4]. - Recommended companies include Daotong Technology and Wanma Co., which are well-positioned in the charging station market [4]. Energy Storage - The report projects a 69% increase in the scale of energy storage installations in China in 2024, with expectations of continued high demand and profitability improvements for energy storage companies [6]. - Key players in the energy storage market include Shenghong Co. and Weiteng Electric [6]. Hydrogen Energy - The report notes a 219.3% increase in the number of electrolyzer tenders in the first half of 2024, indicating strong demand in the hydrogen sector [8]. - Companies to focus on include Huaguang Huaneng and Yihua Tong [9].

Investment Rating - The report maintains a positive outlook on the photovoltaic (PV) sector, indicating that despite recent adjustments, the industry's turning point logic remains unchanged and the sector is still worth attention [2]. Core Insights - The report highlights that the recent centralized procurement by Huaneng for 15GW of PV modules shows a significant price increase compared to October, with N-type bids ranging from 0.675 to 0.722 RMB/W, indicating a shift away from low-price competition towards a focus on technology and quality [2][26]. - The report emphasizes that the industry is moving towards recognizing and rewarding new technologies, as evidenced by the premium prices for HJT and BC technology sections, which are over 0.1 RMB higher than traditional options [2][26]. - The report notes an increase in industry concentration, with leading companies such as Longi, Jinko, and Chint dominating the procurement candidates, which is expected to benefit these leaders in the long run [2][26]. Price Trends - The report provides a detailed overview of the current pricing trends in the PV supply chain, indicating that the average price of dense material is stable at 40 RMB/kg, while silicon wafer prices for P-type and N-type remain unchanged or show slight increases [5][8]. - The report also mentions that the average prices for PERC and TOPCON cells are stable, with dual-glass PERC module prices holding steady at around 0.68 to 0.69 RMB/W [5][8]. Market Performance - The report indicates that the PV sector has underperformed compared to the CSI 300 index, with a recent weekly decline of 3.66% and a year-to-date performance lagging by 24.44% [6][15]. - The report highlights that the current price-to-earnings (P/E) ratio for the PV sector is 49.19, which is relatively high compared to other sectors, suggesting a potential for future growth despite recent market challenges [21][15]. Procurement Insights - The report details that Power China's centralized procurement volume for 2025 is set to increase by 24% year-on-year, with both modules and inverters each at 51GW, reflecting optimism for the market scale in the coming year [4][27]. - The procurement includes various packages for N-type Topcon and HJT technologies, indicating a strategic focus on advanced technologies in upcoming projects [4][27].

Industry Investment Rating - The report does not explicitly provide an overall investment rating for the machinery industry [2] Core Views - The machinery sector faced pressure in 2024Q1-Q3, with a decline in revenue and net profit, particularly in Q3 [2] - Sub-sectors such as semiconductor equipment, boiler equipment, and export consumer chains showed strong performance in terms of revenue and net profit growth [3][4] - Industrial economic recovery is expected, supported by fiscal policies and potential opportunities in real estate and government debt resolution [5] Key Financial Metrics - In 2024Q1-Q3, the machinery industry's median revenue growth was +5.06%, while net profit growth was -6.90% [2] - The industry's gross margin was 27.88%, down 0.09 percentage points year-over-year (YoY), and the net margin was 7.45%, down 1.19 percentage points YoY [2] - In 2024Q3, the industry's median revenue growth was +3.52%, and net profit growth was -4.41%, with a gross margin of 28.16% and a net margin of 6.39% [2] Sub-Sector Performance - Semiconductor equipment, nuclear power equipment, and export consumer chains were among the top-performing sub-sectors in terms of revenue growth in 2024Q1-Q3 [3] - Boiler equipment, export consumer chains, and semiconductor equipment led in net profit growth during the same period [3] - In 2024Q3, boiler equipment, scientific instruments, and semiconductor equipment showed the highest net profit growth [4] Industrial Economic Outlook - Manufacturing PMI in October 2024 was 50.1%, indicating a recovery in industrial economic activity [5] - Fiscal policies are expected to support economic growth, with measures to address local government debt and stabilize the real estate market [5] Raw Material and Cost Factors - Steel prices have declined since January 2024, with the price index at 95.75 on October 25, 2024, down 10.15% YoY [7] - Aluminum prices have risen, with LME aluminum spot settlement price at $2,600.5 per ton on October 25, 2024, up 19.81% YoY [7] - Brent crude oil futures remained volatile, with a settlement price of $76.05 per barrel on October 25, 2024, down 15.95% YoY [7] Valuation and Key Sectors - As of October 31, 2024, the machinery industry's valuation is in the upper-middle range among industries, with a rolling P/E ratio of 25.57x [8] - Key sectors include terminal investment-related sectors (e.g., construction machinery, rail equipment), energy equipment (e.g., photovoltaic, wind power), and emerging industries (e.g., semiconductor equipment, scientific instruments) [8]

Investment Rating - The report does not explicitly state an investment rating for the industry [2] Core Insights - The USD appreciated slightly against the RMB, while the EUR depreciated. Sea freight rates for Europe, East and West US, and Southeast Asia routes increased significantly [2][25] - The comprehensive index of China's export container freight index (CCFI) was 1388.22, up 64.53% year-on-year and 1.51% month-on-month [2][25] - The digital printing industry is rapidly developing, with a significant increase in equipment and production output from 2015 to 2023 [27][28] Summary by Sections Exchange Rates and Freight Rates - As of November 13, 2024, the USD/RMB spot rate was 7.23, up 0.84% from November 6, while the EUR/RMB rate was 7.67, down 0.35% [2][25] - In the second week of November 2024, the CCFI comprehensive index was 1388.22, with notable increases in various routes: Europe route at 1847.16 (up 93.91% YoY), East US route at 1225.10 (up 48.53% YoY), West US route at 1227.36 (up 69.87% YoY), and Southeast Asia route at 1005.39 (up 56.52% YoY) [2][25] Macro Data - In October, the US inflation rate was 0.2% month-on-month, with a year-on-year CPI increase of 2.6%. The Eurozone CPI growth was 2% YoY, up from 1.7% [3][26] - Turkey's CPI in October was 48.58% YoY, while Southeast Asian countries showed varied inflation rates [4][26] Key Industry Updates - The digital printing industry in China has seen a rise in equipment to about 50,000 units, with a significant annual growth rate in production output from 2015 to 2023 [27][28] - The processing fees for digital transfer printing are lower than traditional printing, leading to a high substitution rate [27][28] Investment Recommendations - The report suggests continued attention to specific companies such as Hangzhou Honghua Digital Technology Stock, Hangzhou GreatStar Industrial, Yindu Kitchen Equipment, and Zhejiang Taotao Vehicles [28]