Investment Rating - The report indicates a focus on improving the M&A environment in Japan, suggesting a positive outlook for the market [6][29]. Core Insights - The report highlights the ongoing commitment of Japanese regulatory bodies to enhance the M&A landscape, with significant revisions to corporate governance expected in the coming months [6][29]. - The report emphasizes the importance of protecting minority shareholders during M&A transactions, which is seen as a critical factor for accelerating M&A activities in Japan [6][29]. - The report notes that the recent increase in share buybacks has led to a rise in total dividend payouts, indicating a positive trend in corporate capital return strategies [18][19]. Summary by Sections Market Overview - The TOPIX index is currently at 2,735.52, reflecting a slight decrease of 0.2%, while the NK225 index is at 37,160.47, down by 1.6% [1]. - Key sectors performing well include non-ferrous metals and pharmaceuticals, while insurance and glass & ceramics are lagging [1][20]. Corporate Actions - There has been a notable net purchase of TSE Prime cash stocks by foreign investors amounting to ¥597 billion, while individual and institutional investors have net sold ¥222 billion each [3]. - The report mentions that the total amount of share buybacks announced in the second quarter has already surpassed the total for the entire second quarter of the previous fiscal year [2][13]. Earnings and Forecasts - The report provides earnings per share (EPS) forecasts for FY24 and FY25, with expected growth rates of 10% and 2% respectively [25][30]. - The average exchange rate assumptions for the yen against the dollar are set at ¥145 for FY25, indicating a potential impact on export-oriented companies [11][29]. Sector Performance - The pharmaceutical sector has shown a 3% increase over the past week, while the defense sector has also performed well with a 3% rise [20]. - The report lists various sectors with their respective performance metrics over different time frames, highlighting the best and worst performers [21][66].

Investment Rating - The report indicates a focus on the TMT (Technology, Media, and Telecommunications) sector, which is currently favored for investment during the summer [29]. Core Insights - The NDX (Nasdaq 100 Index) experienced a 2% decline last week due to mixed headlines and overbought conditions, with the index's 200-day moving average approximately 2.5% away [3][4]. - There is a notable downward trend in cyclical stocks, with the CYCS vs DEFS pair down 6 of the last 7 days, reflecting ongoing macroeconomic uncertainty and concerns about "pull forward" dynamics [4][6]. - Investors are increasingly focused on finding new long positions with real upside potential, particularly outside of mega-cap stocks, as the market shifts towards a services-oriented framework over goods [5][6]. - Upcoming earnings reports, particularly from NVDA (Nvidia), are expected to set the tone for the summer, with a reliance on earnings revisions rather than just multiple expansions to drive market upside [7]. Summary by Sections Market Performance - The NDX's recent performance shows a consolidation phase, with several charts indicating a search for support after recent declines [3][4]. - The semiconductor sector has also faced a downturn, with the SOX index down for seven consecutive days [4][8]. Investor Sentiment - A survey of institutional investors revealed that 37% consider trade policy the biggest risk for the summer, followed by concerns about US growth (26%) and the US deficit (23%) [23]. - 97% of respondents believe that a continued rise in backend yields could pose problems for equities, with significant attention on 10-year yield levels [26]. Sector Preferences - The TMT and Financials sectors are viewed as the most favorable for investment this summer, while consumer discretionary stocks are the least favored [29]. Future Outlook - The report emphasizes the importance of macroeconomic and tariff headlines as investors prepare for the second half of the year, focusing on companies that have managed to de-risk their outlooks in recent earnings reports [7].

Investment Rating - The report assigns a "Buy" rating to HG Tech with a 12-month price target of Rmb53, indicating an upside potential of 26.6% from the current price of Rmb41.86 [16][18]. Core Insights - HG Tech is expected to benefit from multiple growth drivers, including AI infrastructure demand for optical transceivers, overseas expansion in the sensors segment, and new product introductions in laser tools [1]. - The company anticipates robust revenue and profit growth across all three business segments in 2025-26, addressing investor concerns regarding non-AI business growth [1]. Segment Summaries Sensors Segment - The sensors segment contributed over 60% of the company's net profit in 2024, with key growth drivers identified as overseas expansion and new sensor product development [2]. - HG Tech has secured a US$100 million order from a European luxury car maker, marking a significant milestone in its overseas business [2]. - A production plant in Thailand has been established with an annual capacity of 2 million units for PTC heaters, complementing the 9 million units capacity in mainland China [2]. Laser Tools Segment - The laser tools segment includes high-power tools for various industries such as automotive, metal processing, and shipbuilding [3]. - Orders from shipbuilding customers have more than quadrupled, with current orders standing at Rmb700 million, compared to Rmb3.5 billion in total revenue for the laser tool segment in 2024 [6]. Optical Transceivers Segment - HG Tech primarily supplies optical transceivers to Chinese cloud companies, benefiting from increased AI spending [8]. - The company plans to ramp up production capacity to 1 million units per month by the end of 2025, up from 500,000 units in early 2025 [8]. 3D Printing Segment - The company has initiated a joint venture in 3D printing, which is seen as a long-term growth driver across various sectors including consumer electronics and automotive [7]. - HG Tech currently offers six 3D printing products capable of producing parts ranging from 100mm to 400mm in size [7].

Investment Rating - The report assigns a "Buy" rating to Huaqin Technology with a 12-month price target of Rmb81.80, indicating an upside potential of 19.9% from the current price of Rmb68.20 [9]. Core Insights - Huaqin Technology is expected to achieve double-digit revenue growth in 2025, driven by its data center business, consumer electronics, and new ventures in automotive electronics and robotics [1][2][3]. Summary by Sections Data Center Business - Huaqin's data center product lines include AI servers, general servers, and switches, primarily targeting China cloud service providers (CSPs). The company is optimistic about ramping up its AI server production, benefiting from market share gains and increased capital expenditures in AI infrastructure in China [2][3]. Consumer Electronics - The management anticipates double-digit year-over-year growth in its PC business for 2025. The smartphone segment is expected to benefit from growing market share in the Android ODM market. Additionally, there are growth opportunities in smart wearables, driven by brand customers expanding their market share and the introduction of AI-powered wearables [3][4]. New Business Ventures - Huaqin has made strategic moves into automotive electronics and robotics, including the acquisition of HCTRobot to enhance its robotics capabilities. The company has established an R&D team focused on developing industrial robotics prototypes and is working on a smart driving domain controller [4][7]. Financial Projections - The report projects Huaqin's revenue to grow from Rmb109.88 billion in 2024 to Rmb209.38 billion by 2027. EBITDA is expected to increase from Rmb3.28 billion in 2024 to Rmb8.43 billion in 2027, with EPS projected to rise from Rmb2.88 to Rmb6.31 over the same period [9].

Si Fu, Ph.D. +852-2978-0200 | si.fu@gs.com Goldman Sachs (Asia) L.L.C. Kevin Wang, CFA +852-2978-2446 | kevin.wang@gs.com Goldman Sachs (Asia) L.L.C. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. 26 May 2025 | 12:12AM HKT China Musings The Renaissance of the Renminbi Kinger Lau, CFA +852-2978-1224 | kinger.lau@gs.com Goldman Sach ...

Investment Rating - The report assigns a "Buy" rating to Lingyi (002600.SZ) with a 12-month price target of Rmb10.10, indicating an upside potential of 24.7% from the current price of Rmb8.10 [8]. Core Insights - Lingyi's management is optimistic about growth driven by the demand for precision components in consumer electronics and server cooling modules, particularly due to the shift in smartphone form factors and the rise of AI applications [1][2]. - The company is expanding its product offerings in foldable phones and AI glasses, targeting higher dollar content per device and anticipating increased shipments [3][6]. Summary by Sections Cooling / Thermal Modules for AI Smartphones - Lingyi provides over 200 SKUs of metal precision parts for major smartphone brands, focusing on high-end models using copper materials for 2025, with plans to introduce hybrid materials in 2026 [2]. - The company's factory in India is expected to meet client demand, contingent on the capacity expansion by assemblers in the region [2]. Foldable Phones - The company supplies metal middle frames and precision parts for foldable phones, with a positive outlook on the growing trend and plans to engage with global-tier smartphone brands [3]. AI Glasses - Lingyi manufactures structural parts and cooling components for AI/AR glasses, expecting significant upside as major global technology companies plan to launch their own versions [6]. Financial Projections - Revenue projections for Lingyi are Rmb44.21 billion in 2024, increasing to Rmb79.75 billion by 2027, with EPS expected to grow from Rmb0.25 in 2024 to Rmb0.73 in 2027 [8].

Investment Rating - The report maintains a Neutral rating for Maxscend with a 12-month target price of Rmb86, indicating an upside potential of 23.2% from the current price of Rmb69.81 [2][11]. Core Insights - Management is optimistic about the company's RF modules expansion, the ramp-up of in-house capacity utilization, and new growth opportunities in the long term [1][2]. - The smartphone market is anticipated to take time to transition to the next product cycle (6G), and the shift from fabless to fab-lite may also require time to enhance efficiency and profitability [2]. Summary by Sections 2025 Business Outlook - Management expects quarterly revenues and margins to increase sequentially in 2025, driven by RF modules expansion, improved smartphone seasonality in the second half of 2025, and normalizing depreciation as utilization rates rise [3]. - Inventory levels are projected to decline but remain relatively high due to geopolitical tensions [3]. Xinzhuo Project Development Progress - The 6" and 12" wafer production lines have commenced mass production, with the 12" production line currently achieving a capacity of 4,000 wafers per month, aiming for 5,000 wafers per month by the end of 2025 [4]. - As capacity increases, the depreciation cost per wafer is expected to decrease, leading to margin improvements [4]. New Growth Opportunities - Management is positive about the potential of LEO satellite direct-to-cell functions, which could create additional RF module opportunities for Maxscend [8]. - There are also long-term prospects in high-end markets such as AI and robotics, allowing the company to leverage its in-house capacity more effectively [8].

Investment Rating - The report assigns a "Buy" rating to several companies related to the foldable phone and AI device supply chain, including SZS, Fositek, Lingyi, AVC, AAC, and Huaqin [17]. Core Insights - The report highlights a positive outlook for Lens Technology Co. (300433.SZ) as it expands its product offerings from smartphone components to emerging markets such as AI glasses and automotive components, which is expected to enhance profitability through improved utilization rates and specification upgrades [1][4]. - There is an anticipated increase in global foldable phone shipments and a rising demand for AI devices driven by generative AI use cases, aligning with the company's optimistic view on AI glasses and foldable phones [2][4]. Summary by Sections 2025 Outlook - Management is optimistic about growth in 2025, supported by new smartphone model launches from major customers, which is expected to improve utilization rates during traditionally slow seasons [4][8]. Tariffs' Impact - Tariffs are expected to have a minor impact on growth due to the company's shipping practices and global production sites in Vietnam, Thailand, Mexico, and China, allowing for flexible capacity adjustments [8][9]. New Business Expansion - Lens Tech aims to penetrate the automotive components market, targeting major OEMs with higher dollar content per vehicle, and has formed a strategic partnership with Rokid in the AI glasses sector, anticipating growth as market demand increases [9][4].

Investment Rating - The report assigns a "Buy" rating to SICC (688234.SS) with a 12-month price target of Rmb75.50, indicating an upside potential of 24.7% from the current price of Rmb60.55 [10]. Core Insights - The management of SICC is optimistic about market demand driven by the increasing launch of 800V electric vehicles (EVs) and the growing need for EV fast charging. Additionally, the demand for SiC substrates in augmented reality (AR) glasses is expected to rise significantly [1][3]. - SICC is positioned well within the AD/ADAS trend, enhancing SiC's penetration in the EV market. The company is a local leader in SiC substrates, benefiting from local car OEMs diversifying their supply chains amid geopolitical tensions [1][3]. Summary by Sections Capacity Expansion - SICC's production facilities are located in Shanghai and Jinan, China. The Shanghai plant has a capacity of 300k units per year for phase 1 (6-inch or 8-inch SiC substrate) and an additional 300k units per year in phase 2, primarily for 8-inch SiC substrate. The Jinan site has a capacity of 100-150k units per year for 6-inch SiC substrate. The company plans to expand its 8-inch capacity to non-China markets to increase its market share among global SiC device manufacturers [2]. SiC Penetration in EVs - Management anticipates that the penetration rate of SiC in mainstream EV models will continue to rise as more 800V EV models are introduced in the coming years. The localization trend of SiC substrates is expected to support the company's growth, as local suppliers offer more cost-effective products, allowing customers to diversify their supply chains [3]. SiC Application in AR Glasses - SiC is identified as the optimal solution for AR glasses due to its superior reflection control and lightweight properties. Management projects that the demand for SiC substrates from AR glasses may eventually surpass that from EVs in the long term, presenting significant upside potential for SICC [7].

Investment Rating - The report assigns a "Buy" rating for Innolight with a 12-month price target of Rmb115, indicating an upside potential of 25.2% from the current price of Rmb91.87 [10][14]. Core Insights - Innolight is positioned as a leading supplier of optical transceivers in the datacom market, particularly benefiting from the growth in AI and data center expansions [10][11]. - The demand for 800G transceivers is expected to remain strong, driven by cloud service providers transitioning from 400G to 800G for AI inferencing applications [2][10]. - The company anticipates easing supply constraints by the third quarter of 2025 due to new capacity from laser suppliers, which should support shipment growth [7][10]. - Profitability is projected to improve due to a favorable product mix, particularly with an increase in silicon photonics modules, which have higher gross margins compared to traditional transceivers [8][10]. Summary by Sections Demand Outlook - The demand outlook for 2025 remains unchanged, with solid orders from customers. The transition to 800G is expected to ramp up in the second half of 2025, particularly for AI applications [2][10]. - The migration from 400G to 800G in traditional cloud datacenters is anticipated to gain momentum into 2026, although it currently accounts for less than 20% of overall 800G demand in 2025 [2][10]. Supply Constraints - Innolight's revenue growth has been flat over the past three quarters due to upstream component constraints, particularly with EML laser supply. Management expects improvements in supply conditions by 3Q25 [7][10]. Profitability and Margins - The company has reaffirmed its trend of profitability improvement, driven by a shift in product mix towards silicon photonics transceivers and enhanced manufacturing efficiency [8][10]. - The gross margin is expected to increase from 33.8% in 2024 to 38.3% in 2025, with net margins projected to rise from 21.7% in 2024 to 24.3% in 2025 [9][10]. Future Projections - The ramp for 1.6T transceivers is set for 3Q25, but the overall volume is expected to remain small compared to 800G. The mainstream adoption of 1.6T is anticipated in 2027 [3][10]. - The financial outlook shows significant revenue growth, with projections of Rmb29.3 billion in 2025 and Rmb33.6 billion in 2026 [9][10].