Investment Rating - The investment rating for SMIC is maintained as "Buy" [7][8][11] Core Views - SMIC's 1Q25 revenue reached US$2.2 billion, reflecting a 28% year-over-year increase and a 2% quarter-over-quarter increase, aligning closely with consensus expectations [1][2] - The gross margin for 1Q25 was reported at 22.5%, exceeding both management guidance and market expectations, attributed to improved utilization rates [1][2] - The company is expected to continue significant capital expenditures to expand capacity in response to increasing demand from local clients [1][7] Summary by Sections Financial Performance - 1Q25 revenue was US$2,247 million, a 28% increase year-over-year and a 2% increase quarter-over-quarter [6] - Gross profit was US$506 million, with a gross margin of 22.5%, significantly higher than the previous year's 13.7% [6] - Operating income was US$310 million, representing a 12777% increase year-over-year [6] - Net income for 1Q25 was US$188 million, a 162% increase year-over-year [6] Capacity and Utilization - SMIC's capacity increased to 973k wpm (8-inch equivalent) in 1Q25, up from 948k wpm in 4Q24 [2][6] - Utilization rates improved from 85.5% in 4Q24 to 89.6% in 1Q25 [2][6] Future Guidance - For 2Q25, SMIC expects revenues to decrease by 4% to 6% quarter-over-quarter, while still projecting a year-over-year growth of 11% to 13% [6][7] - The gross margin for 2Q25 is guided to be between 18% and 20% [7] Investment Thesis - SMIC is positioned as the largest foundry in China, covering a wide range of technology nodes and applications, with a positive long-term growth outlook driven by local demand [7][8] - The shares are considered attractively valued, trading below historical average P/E ratios, with expectations of gradual margin recovery [7][8]

Investment Rating - The report maintains a "Buy" rating for Kweichow Moutai, Wuliangye Yibin, Luzhou Laojiao, and Fen Wine, while issuing "Neutral" ratings for Anhui Gujing and Jiangsu King's Luck Brewery, and "Sell" ratings for Jiangsu Yanghe, Sichuan Swellfun, and Jiugui Liquor [7][8]. Core Insights - The spirits industry is experiencing a slowdown in growth, with average sales and net profit growth projected at 6% and 8% respectively for 2025, following a tough 4Q24 [1][6]. - Super premium brands like Moutai and Wuliangye continue to show resilience, achieving higher growth compared to mid- to low-end segments [2][16]. - Companies are adopting more cautious financial guidance for 2025, indicating a focus on channel health and inventory management [5][18]. Summary by Sections Sales and Profit Performance - Spirits coverage saw a slowdown with average sales growth of 7% and net profit growth of 8% in 2024, with a tough 4Q24 showing only 3% sales growth [1][11]. - Moutai and Wuliangye reported strong sales growth of 16% and 7% respectively in 2024, while Jiangsu Yanghe faced a significant decline of 13% [13][16]. Company Guidance - Most companies have set lower financial guidance for 2025, reflecting caution regarding demand outlook and a focus on resolving channel inventory issues [5][18]. - Kweichow Moutai's guidance for 2025 includes a sales growth target of 9%, down from 15% in 2024 [18]. Market Trends - The report highlights a divergence in performance between super premium and upper mid-end players, with super premium brands maintaining stable demand while upper mid-end brands like Yanghe and Jiugui faced significant declines [16][22]. - The demand for upper mid-end spirits is declining, while super premium segments remain stable, indicating a shift in consumer preferences [20][22]. Shareholder Returns - There is a notable increase in dividend payout ratios across the sector, with some companies committing to high payout ratios and total cash dividends [17][28]. - Wuliangye and Laojiao have raised their dividend payout ratios to approximately 70% and 65% respectively, reflecting a commitment to shareholder returns [17]. Valuation and Earnings Revisions - The average P/E ratio for spirits coverage is currently at 16x for 2025, slightly above historical averages, with a general downward revision in earnings forecasts for several companies due to competitive pressures [1][6][28]. - Wuliangye's earnings forecast has been revised upwards, while forecasts for Gujing, King's Luck, Yanghe, and Swellfun have been revised downwards [6][28].

Investment Rating - The report assigns a "Buy" rating to several companies in the semiconductor sector, including ACM Research, AMEC, AccoTest, Cambricon, Horizon Robotics, Montage, NAURA, Piotech, and Will Semi [13]. Core Insights - The semiconductor industry in China is expected to see increased capital expenditure (capex) in the coming years, driven by local demand for advanced semiconductor capacities amid tariff uncertainties [2]. - There is a significant focus on high-end lithography systems, which are critical for producing advanced node semiconductors, as existing tools may soon become obsolete [3][4]. - The technology gap in lithography remains substantial, with a need for more skilled talent and a robust supply chain to support research and development [4][6]. Summary by Sections Investment in High-End SPEs - The industry is prioritizing investment in high-end lithography systems due to export controls on existing technologies, with a noted urgent demand for these systems in China [3]. Technology Gap - The complexity of lithography systems presents a significant challenge, requiring time for R&D and a greater pool of talent to expedite development [4][6]. Lithography Ecosystem - The lithography ecosystem in China is still in its early stages, with supply chain companies collaborating to develop necessary systems, although challenges remain in producing highly customized lens components [6].

Investment Rating - The report maintains an Overweight rating on China equity, with a raised 12-month index target for MSCI China and CSI300 to 78 and 4,400, implying potential returns of 7% and 15% respectively [1][31]. Core Insights - Despite trade frictions with the US, China financial assets have shown resilience, with the Rmb appreciating against the USD by 1.7% in the past month and Chinese government bonds reaching all-time highs [1][2]. - The report highlights a targeted monetary easing package from the PBoC, NFRA, and CSRC, which includes 23 measures aimed at supporting the real economy and financial markets [6][8]. - The effective US tariff rate on Chinese imports is expected to decrease from around 160% to approximately 60%, which has led to an upward revision of the 2025 EPS growth estimate for MSCI China from 4% to 6% [1][10][13]. Summary by Sections Market Performance - China equity (MSCI China) has recovered 12% year-to-date and almost fully recovered from a 13% drawdown post-Liberation Day [1][3]. - Southbound flows to HK-listed equities have reached US$80 billion year-to-date, three times larger than the same period last year [19][20]. Monetary Policy - The recent monetary easing measures are seen as a positive surprise, aimed at improving liquidity and reducing funding costs, with a focus on demand-side support [6][8]. - Specific measures include a 50 basis point RRR cut providing approximately Rmb1 trillion in liquidity and targeted assistance for SMEs [8][10]. Economic Indicators - Hard data remains robust, with property sales in primary markets rising 26% year-over-year during the Labor Day holidays, particularly in tier-1 and tier-2 cities [10][11]. - However, soft data indicates signs of moderation, with declining trends in PMIs and cargo shipments [10][11]. Earnings Forecast - The report nudges up the 2025 EPS growth estimate for MSCI China to 6%, reflecting expectations of a lower effective US tariff rate and a stronger Rmb [10][13]. - The revised EPS integer forecast for 2026 remains 8% below the prevailing sell-side consensus [10]. Sector Focus - The report emphasizes a focus on sector and thematic alpha, particularly in domestic stimulus beneficiaries, select AI proxies, and local government spending beneficiaries [1][37]. - Banks and Real Estate have been upgraded to Overweight to enhance domestic exposure and sensitivity to policy easing [37][40].

Investment Rating - The report highlights a "Buy" rating for seven selected stocks within the property value chain, indicating a positive outlook for these companies as they are well-positioned to benefit from recovering housing upgrade needs and building renovation demand [3][34]. Core Insights - The property value chain is expected to see a significant shift towards domestic demand, driven by potential policy support aimed at mitigating external uncertainties. This shift is projected to create a total addressable market (TAM) of Rmb5.7 trillion by 2035, representing a 70% increase compared to 2024 [3][34]. - The report anticipates an average 5% compound annual growth rate (CAGR) in topline revenue for the property value chain companies through 2035, with a notable improvement in profitability and dividend yields due to operational efficiencies and disciplined capital expenditures [5][34]. Summary by Sections Property Value Chain Stocks - The report identifies seven stocks (CRL, Yuhong, BNBM, Kinlong, Robam, KE, and Greentown Service) as beneficiaries of domestic stimulus, all rated as "Buy" [3][34][18]. Executive Summary - The property construction value chain, which constitutes approximately 30% of China's GDP, has faced challenges due to the downturn. However, potential policy support for domestic demand is expected to accelerate housing upgrades and boost secondary market transactions [29][34]. Implications for the Value Chain - The report outlines three main implications for the value chain: a decline in demand for building products, a consolidation of the developer industry, and a significant shift towards secondary market transactions, which are projected to account for 66% of total housing transactions by 2035 [31][32][51]. Housing Market Outlook - By 2035, housing demand is expected to be 40% below peak levels, with a significant portion coming from Tier-1 and Tier-2 cities. The secondary market is projected to overtake the primary market in terms of transaction volume and value [42][51]. Renovation Demand - Renovation demand is anticipated to nearly double by 2035, contributing approximately 60% of total construction gross floor area (GFA), which will help offset the decline in new builds [54][36].

Investment Rating - The report maintains a "Buy" rating on Nari Tech and other domestic China opportunities, while downgrading Sungrow to "Neutral" [3][24]. Core Views - The report indicates a preference for domestic China opportunities, particularly in the grid technology sector, with a strong outlook for 2025E grid investment [2][3]. - The overall sector results for 1Q25 were largely in-line, with a median revenue change of -0% and net profit change of -6% compared to Goldman Sachs estimates [1][10]. - The report revises target prices by -14% to +13% based on 1Q25 results and forward-looking trends, rolling over the valuation base year to 2026E [1][43]. Summary by Sections 1Q25 Results Summary - 1Q25 sector results were largely in-line with 14 companies missing earnings, 13 in-line, and 5 beating expectations [1][10]. - The median gross profit margin (GPM), operating profit margin (OPM), and net profit margin (NPM) were -0.9pp, -1.7pp, and -0.5pp compared to Goldman Sachs estimates [11]. Demand Outlook - The report expects a weaker demand outlook for industrial automation in 2H25, lowering the growth expectation from flat to -4% year-on-year due to tariff impacts and uncertainties [12][16]. - Despite the challenges, a deep decline in demand is not anticipated, with government policies potentially providing support [14][20]. Domestic Opportunities - Nari Tech is highlighted as a preferred investment due to its strong growth guidance of 12% year-on-year for 2025, attributed to a robust backlog and favorable market conditions [24][46]. - The report emphasizes the potential benefits from government stimulus and the structural needs for smart grid investments in China [3][25]. AI Beneficiaries - The report continues to favor AI beneficiaries, particularly in the AI Data Centre (AIDC) space, with companies like Kstar and Envicool rated as "Buy" due to strong demand growth [2][34]. - The humanoid robot sector is also noted for its rapid R&D advancements, with companies like Sanhua being preferred for their product certainty and reasonable valuations [38][39]. Target Price Revisions - Target prices for the sector have been revised downwards by an average of -14% to +13%, reflecting the 1Q25 results and anticipated market trends [1][43].

Investment Rating - The report does not explicitly provide an investment rating for the industry Core Insights - The upcoming implementation of large tariffs is expected to reverse the progress made in controlling inflation in the US, which had previously shown signs of stabilization in the labor market and wage growth [2][3] - Tariffs are projected to increase the core PCE price index by approximately 2¼%, with a significant impact on consumer electronics and apparel categories [6][22] - Year-over-year core PCE inflation is forecasted to be 3.8% in 2025 and 2.7% in 2026, which is higher than previous estimates [39][55] Summary by Sections Tariff Impact on Prices - Each 1 percentage point increase in the effective tariff rate is estimated to raise core PCE prices by 0.10%, with an expected rise of about 15 percentage points in the effective tariff rate leading to a 1½% increase in core PCE prices [6][22] - The weakening of the dollar in response to tariff news is expected to amplify the direct impact of tariffs on prices [11][22] - A shift in import demand from China to countries with higher production costs but lower US tariff rates is anticipated to further raise US prices without a corresponding increase in the effective tariff rate [11][19] Sector-Specific Effects - Consumer electronics and apparel are particularly vulnerable to tariff impacts, with imported goods accounting for roughly 40% of final consumption expenditure in these categories [35][41] - The effective tariff rates on these imports are expected to increase by 20-30 percentage points, leading to significant price increases [35][41] Inflation Forecasts - The report predicts a sharp acceleration in core goods inflation, forecasting a rise from 0.4% in March 2025 to 6.3% in December 2025 [39][55] - Core services inflation is expected to remain less affected by tariffs in the initial months, allowing for a clearer comparison of the impact of tariffs on core goods versus core services [39][55] Market Expectations - The report indicates that the forecast for year-over-year headline CPI inflation is expected to rise from 2.4% to as high as 3.7% by March 2025, which is above market-implied expectations [55][56]

Investment Rating - The report does not explicitly provide an investment rating for the industry Core Insights - Chinese exports showed a year-over-year growth of 10.1% in real terms for Q1 2025, while nominal exports grew by 5.6% due to lower export prices across all categories [7] - The report anticipates a significant slowdown in export volume growth in the coming months if tariffs are maintained, projecting a decline of 5% in total goods export volume for 2025 [7][50] - Chinese nominal imports fell by 7.2% year-over-year in Q1 2025, primarily due to decreasing import volumes [25] - The current account surplus is expected to decrease to 1.6% of GDP in 2025 from 2.2% in 2024, driven by a narrower goods trade surplus and a widening services trade deficit [7][55] Summary by Sections Exports - Chinese exports remained solid in Q1 2025, with a 10.1% year-over-year growth in real terms, while nominal exports grew by 5.6% [7] - The decline in export prices was broad-based, affecting all categories, with the most significant increases in real terms for stone/glass/metals and transportation equipment [7][21] - Exports to Africa saw the highest year-over-year increase in Q1 [18] - New export orders under both NBS and Caixin manufacturing PMIs fell sharply in April amid higher US tariffs [23] Imports - Nominal imports decreased by 7.2% year-over-year in Q1 2025, with the weakest growth in stone/glass/metals due to lower gold imports [25] - Mechanical machinery and electric equipment saw the strongest import growth, while import prices for stone/glass/metals increased the most [25][39] - Imports fell for all regions except Japan, Korea & Taiwan, and ASEAN [33] Current Account and Balance of Payments - The report projects a decline in China's goods trade surplus to 3.7% of GDP in 2025 from 4.0% in 2024 [7] - The broad balance of payments (BBOP) is expected to remain unchanged at 0.4% of GDP in 2025, with significant net FDI outflows [8][57] - The current account balance is projected to narrow, reflecting a combination of a smaller goods trade surplus and a wider services trade deficit [55]

Investment Rating - The report maintains a cautious outlook on US yields, suggesting that any material cheapening could present a buying opportunity for long positions, particularly in the context of broader growth expectations [1][2]. Core Insights - The report indicates that recent activity data has alleviated fears of an imminent economic deterioration, leading to a reassessment of Fed rate cut timing, now expected in July, September, or October [2]. - There is a belief that the recent dynamic of tariff de-escalation could extend in the near term, which may influence inflation and Fed signals [2]. - The report highlights a preference for buying 3m10y payers on the 3m 5s10s30s payer fly as a low-cost hedge against rising yields [1][5]. Summary by Sections United States and Canada - The labor market's health leaves rates pricing vulnerable to inflation surprises or a more vigilant Fed signal [2]. - The report anticipates that belly and long-end inflation will remain appealing if the positive growth trend continues [2]. - The Bank of Canada is expected to prioritize growth risks, with potential for further cuts if economic conditions worsen [2][19]. Europe - European core rates are stable, with limited signals from recent data for the ECB, which is expected to continue its cutting trajectory [11]. - The report suggests that sovereign credits like Bonos and BTPs may outperform core rates due to favorable ECB policies and macroeconomic performance in Spain and Italy [12]. - The report forecasts 10y Bund yields at 2.80% by the end of 2025, reflecting a stable outlook despite current market conditions [12]. Japan - The Bank of Japan's dovish tone and downgraded growth forecasts suggest skepticism about future rate hikes, with expectations pushed back to January 2026 [25]. - The report notes that the market is pricing in lower terminal rates, reflecting uncertainty about the BOJ's future actions [26]. Australia and New Zealand - The upcoming Australian election may influence fiscal and monetary policy, with potential stronger fiscal support if the incumbent Labor party remains in power [27]. - The report indicates that global growth risks may limit divergence between AUD and NZD rates [27]. Forecasts - The report provides a forecast for G10 10-year yields, with expectations for USD at 3.95% in 2Q25 and 4.00% in 4Q25, reflecting a cautious outlook on global economic conditions [31].

Investment Rating - The report raises the Southbound flow forecast from US$75 billion to US$110 billion for 2025, indicating a positive outlook for Southbound investments [7][35][41]. Core Insights - Emerging markets in Asia, excluding China, experienced strong foreign institutional investor (FII) inflows of US$2.8 billion week-over-week, primarily driven by Taiwan [6][44]. - In April, Korea led the regional foreign selling, while domestic institutional flows in India remained robust [7][8]. - Global equity mutual funds saw inflows of US$8 billion week-over-week, with significant outflows from US funds [6][10]. Summary by Sections Foreign Institutional Investor (FII) Flows - EM Asia ex-China markets saw FII buying of US$2.8 billion week-over-week, led by Taiwan (+US$1.7 billion) [6][44]. - Southbound flows recorded US$0.2 billion this week, totaling US$78 billion year-to-date [6][35]. - In April, Korea experienced significant FII selling, while India saw strong domestic institutional inflows [7][8]. Mutual Fund Performance - The largest 350 EM and Asian mutual funds rebounded, posting average returns of 1-4% year-to-date, with EM funds outperforming Asia funds by 3 percentage points [7][8]. - Only 20-40% of the largest Asian/EM funds outperformed their benchmarks in April, below the 10-year average of 55-65% [11][12]. Southbound Flows - Southbound flows have made the strongest start of a year in history, with US$78 billion year-to-date [7][35]. - The report highlights a significant increase in Southbound ownership in the Hong Kong market, indicating growing interest from mainland investors [37][41]. - The top buying stocks in Southbound flows included Meituan Dianping and Akeso, while Tencent and Alibaba saw significant selling [67][71].