October 7, 2024 08:00 PM GMT China Industrials | Asia Pacific What's Changed Shenzhen Inovance Technology (300124.SZ) From To Price Target Rmb54.00 Rmb64.00 M Idea Morgan Stanley Asia Limited+ Sheng Zhong Equity Analyst Sheng.Zhong@morganstanley.com +852 2239-7821 Chelsea Wang Equity Analyst Jinlin.Wang@morganstanley.com +852 2239-1118 Serena Chen Research Associate Serena.Chen@morganstanley.com +852 2848-7107 3Q24 Preview - Automation and general equipment We expect most automation companies' 3Q earnings t ...

Investment Rating - The report does not explicitly provide an investment rating for the industry or specific assets covered [2][4]. Core Insights - The report analyzes liquidity conditions across various asset classes, including equities, bonds, FX, and commodities, with a focus on recent market developments and liquidity metrics [2][4]. - It highlights a significant decline in liquidity across multiple markets, particularly in the US, Eurozone, Japan, and China, indicating a challenging environment for investors [2][4]. Summary by Sections Equities - In the US, August 5th experienced a notable sell-off in equities, leading to the lowest liquidity of the year, with average market depth at $2.7 billion, down 16% from the previous quarter but 17% above the 5-year average [5]. - Eurozone equities saw a liquidity drop to an average of EUR 59 million, 51% lower than the previous quarter and 58% below the 5-year average, reflecting a sluggish recovery [9]. - The Japanese market faced historically high volatility, with liquidity slumping to a historical low in August, averaging JPY 18.8 billion, down 35% from Q2 and 31% lower than the 5-year average [13]. Fixed Income - The 10Y US Treasury market liquidity averaged $5.9 billion, 10% lower than both the previous quarter and the 5-year average, with slight improvements noted in September [19]. - Euro Bund liquidity averaged EUR 360 million, 42% lower than Q2 and 55% below the 5-year average, indicating a slowdown in market activity [21]. - The Japanese 10Y bond market also saw a decline in liquidity, averaging JPY 580 billion, representing a 19% decline from Q2 and 29% lower than the 5-year average [25]. Commodities - Oil prices fell significantly, with market depth dropping to the lowest level this year, averaging $86 million, down 16% compared to the previous quarter and the 5-year average [29]. - Gold prices had their best quarter since 2016, but liquidity remained largely unchanged from the previous quarter, averaging $257 million, about 9% lower than the 5-year average [35]. - Copper liquidity averaged $32 million, down 40% from the previous quarter and 12% lower than the 5-year average, reflecting concerns over demand in China [37]. FX - The EUR/USD futures market liquidity averaged $422 million, 12% lower than the previous quarter but 22% higher than the 5-year average [41]. - The USD/JPY futures market liquidity averaged $108 million, representing a 47% decline from the prior quarter and 37% lower than the 5-year average [45].

Investment Rating - The report maintains a bullish outlook on the AI/HPC conversion opportunities for TeraWulf (WULF) following its recent transaction [1][2]. Core Insights - TeraWulf completed the sale of its 25% equity interest in the Nautilus Cryptomine Joint Venture for $92 million, which includes $85 million in cash and approximately $7 million in contributed miners and equipment [1]. - The transaction is expected to provide WULF with a 3.4x return on investment and will be used to expand its HPC/AI and Bitcoin mining operations at the Lake Mariner facility [1][2]. - The Lake Mariner site has a potential capacity of 500 MW, with an additional 178 MW expected to be available in the second half of 2025 [2]. Summary by Sections Transaction Overview - WULF's sale of its equity interest in Nautilus was valued at $92 million, with Talen Energy Corporation as the buyer [1]. - The transaction implies a payment of approximately $1.7 per watt in cash for the operational capacity [1]. Business Model Insights - WULF's data center business models focus on optimizing land, megawatts, and capital for long-term value creation [6]. - The indicative value creation analysis suggests an equity value creation of $5-8 per watt [7]. Financial Metrics - The report outlines various financial metrics, including a total data center revenue of $155 million per year and an operating margin of 70% [7]. - The construction cost per watt is estimated to be between $7 and $8, with a resulting enterprise value of approximately $1,085 million to $1,628 million [7]. Market Dynamics - The report highlights a "time to power" dynamic influenced by protests regarding the Talen-Amazon data center contract at the Susquehanna nuclear plant [1]. - The market power price and realized ATC market power price are projected to increase over the next few years, enhancing WULF's revenue potential [10].

Investment Rating - The report assigns an "Overweight" (OW) rating to China Resources Land, China Resources Mixc, and Poly Property Services, indicating a positive outlook for these companies [12][19]. Core Insights - The sentiment in the property market has improved significantly during the Golden Week, with tier-1 cities experiencing a 50-100% increase in inquiries and transactions compared to September, which was a low point for sales [1][5]. - The report anticipates positive year-on-year growth in tier-1 cities for October and a notable narrowing of the year-on-year decline in nationwide data [1][6]. - The report suggests that the recent uptick in sales is likely a knee-jerk reaction to policy easing, and November sales will be crucial to determine if the market is truly bottoming out [1][2]. Summary by City - **Shenzhen**: Noted a significant increase in sentiment, with secondary transactions up over 200% year-on-year and primary sales up over 500% year-on-year during the Golden Week [3][6]. - **Guangzhou**: Primary sales subscriptions increased by 200-300% compared to previous weekends, while secondary sales rose by 20-30% compared to September [6][7]. - **Shanghai**: Improved sentiment with more inquiries, particularly for first-home demand, although non-core district projects showed weaker momentum [7][8]. - **Beijing**: Increased visitations to sales offices, but most were from previous visitors rather than new buyers [8]. - **Chengdu**: Overall sentiment was better than in previous months, with both inquiries and transactions improving by 50% [8]. - **Changsha**: Sentiment was reported as the best so far in 2024, exceeding September 2023 levels, but still not as strong as the post-reopening period in 1Q23 [8]. - **Tier-3/4 Cities**: Mixed responses with some sales managers reporting mild improvements while others noted no change, reflecting the targeted nature of recent easing measures [9]. Company Preferences - The report indicates a preference for property managers over state-owned enterprises (SOEs) due to better fundamentals and valuations, with specific recommendations for CR Land, CR Mixc, and Poly Property Services [1][12].

M Update Greater China Materials | Asia Pacific October 7, 2024 09:00 PM GMT Takeaways From Uranium Mine Trips in Kazakhstan Lack of cheap sulfuric acid and value-over-volume strategy may lead to continued disciplined supply from the country, while production cost increase seems inevitable. We attended Kazatomprom's (KAP, the largest uranium producer globally) mine tour and visited its Karasssan 2 (under Biken-U JV) and Kharassan 1 (under Khorasan- U JV) mines in Kyzylorda, Kazakhstan, and communicated with ...

M Global Idea Morgan Stanley Research: Key Forecasts Next-12-Months Snapshot: Growth Resilience October 7, 2024 08:46 PM GMT Next-12-Months Outlook: Our High-Conviction Calls Calibrating the Fed Reaction Function: We continue to expect moderate growth and disinflation around the world. We expect two consecutive 25bp cuts this year after seeing Powell recognize a balanced economy. Risks to the outlook will depend on the labor market. Ex-US, the rest of the global economy is holding up. We maintain our BoJ ca ...

M Idea Asia EM Equity Strategy | Asia Pacific October 7, 2024 09:00 PM GMT Focus List Changes – APxJ and GEM Source: Morgan Stanley Research We add Santos (STO.AX), CapitaLand Investment Ltd (CAPN.SI), Tenaga Nasional (TENA.KL), Link REIT (0823.HK) to our APxJ Focus List, and add Petrobras (PBR.N) and Midea Group Co Ltd. (000333.SZ) to our GEM Focus List. Adding CapitaLand Investment Ltd (CAPN.SI) to our APxJ Focus List for more positive exposure to lower rates. It is our analyst Wilson Ng's Top Pick and vi ...

Investment Ratings - The report provides a cautious investment rating for the South Korea technology sector and an in-line rating for the Japan semiconductor sector [1][5]. Core Insights - The cyclical downturn in the memory sector is now a certainty, indicating no further upside potential [5]. - Chinese DRAM is projected to account for 15% of global capacity by the end of 2025, with DRAM capital expenditure expected to return to historical highs in 2024 and 2025 [7]. - The report highlights significant growth in GPU volumes, with NVIDIA's GPU volume expected to increase from 1,474 thousand units in 2023 to 11,673 thousand units by 2027, representing a CAGR of 68% [9]. Summary by Sections Memory Market Dynamics - DRAM supply levels have returned to historical peaks, with a 22% increase in DRAM wafer starts in 2022 [6]. - The total HBM market is projected to grow from $4 billion in 2023 to $82 billion by 2027, with a CAGR of 107% [9]. Semiconductor Equipment - The report discusses the competitive landscape for semiconductor production equipment, noting that Tokyo Electron holds a 90% market share in core coaters/developers [37]. - The adoption timeline for CoW/WoW technologies indicates rapid growth in HBM applications since early 2010s, with significant business opportunities projected for the coming years [21][22]. Company Ratings and Preferences - The report lists preferred companies in the memory sector, with Western Digital and Samsung Electronics rated as overweight, while SK Hynix and others are rated underweight [13]. - The market cap and current prices for these companies indicate potential upside, with Western Digital showing a 42% upside potential based on current price targets [13].

Investment Rating - Industry View: Attractive [1] Core Insights - Key themes identified include M&A commentary, H2 volume uplift, challenging copper/zinc smelter margin outlook, alumina tightness, and mark to market upgrades [1] - Antofagasta (ANTO) is expected to have soft 3Q24 and 2025 production prospects, while First Quantum (FM) is spotlighted for asset divestment prospects and Cobre Panama concentrate sale [1] - KGHM is gaining momentum with a self-help story and a strategy update expected by year-end 2024 [1] - Norsk Hydro (NHY) shows robust EBITDA upgrade prospects and improving cash returns [1] Summary by Company Antofagasta (ANTO) - Production forecast of 177kt is below consensus of 182kt, with net cash costs expected at USc163/lb, 7% above consensus [16] - Key metrics for Q3 2024 include copper production guidance of 659kt and capex outlook of US$2.65bn [17] Boliden (BOL) - Operating profit forecast for 3Q24 is SEK2.29bn, largely in line with consensus [19] - Key focus areas include smelters profitability outlook and progress on the Tara mine restart [20] First Quantum (FQM) - 3Q24 EBITDA forecast of US$343mn is 2% below consensus of US$350mn, with net debt expected at US$5.8bn [24] - Key metrics include copper production forecast of 104kt, stable q/q, and C1 cash cost estimate of US$1.69/lb [24] KGHM Polska Miedz SA - 3Q24 EBITDA forecast of PLN2,136mn is 2% above consensus of PLN2,103mn, with net debt expected to rise to PLN3.9bn [27] - Focus on production updates and capital allocation strategies [28] Lundin Mining (LUMI) - 3Q24 EBITDA forecast of US$513mn is 6% below consensus of US$545mn, with net debt forecast at US$1.532bn [31] - Production forecast includes copper at 98.0kt and cash costs higher than guidance [31] Norsk Hydro (NHY) - Underlying EBITDA forecast for Q3 is NOK7.4bn, 8% above consensus of NOK6.8bn [34] - Key focus areas include extrusions volume and margin outlook [35] Metlen Energy & Metals - 3Q24 EBITDA forecast stands at €274mn, up 23% q/q [39] - Net debt expected to rise to €2.5bn due to elevated growth capex [39] Aurubis AG - FY24 Operating EBT expected at €410mn, with a profit warning indicating lower guidance [44] - Price target revised down to €64 from €69 [45]

Investment Rating - The industry view is rated as Attractive [6][39]. Core Insights - The China Industrials sector has rallied approximately 36% since September 24, 2024, trading at 16x 1-year forward PE, which is slightly below the 10-year average of 20x despite weak fundamentals [4][6]. - The report suggests that the 2016-2019 period is the most comparable for valuation reference, with expectations of a Rmb2 trillion fiscal package to support the economy [4][6]. - In a base case scenario, the sector is trading close to baseline multiples, with an expected upside of 4-12% for general machinery, automation, railway, and heavy-duty trucks, while construction machinery's valuation is already above the 2016-2018 comparable period [3][9]. - If stronger stimulus policies are implemented, a potential upside of 20-60% on multiples is anticipated [3][4]. Summary by Sections Sector Performance - The report indicates that the market is rising due to expectations of more fiscal policies to support the economy, with a focus on local government financing, infrastructure capex, and modest consumption boosts [4][6]. - The industrial sub-sectors are trading close to the comparable cycle in the base case scenario, with 4-50% further upside room for various sub-sectors [9][17]. Stock Recommendations - Preferred stocks include Hengli Hydraulic, Shuanghuan, Hongfa, Sinotruk, and CRRC, which exhibit solid fundamentals and reasonable valuations [3][6]. - The report highlights early cycle names like Shuanghuan and Hongfa as likely beneficiaries of a consumption boost, while late cycle names may lag [6][21]. Valuation Methodology - The report applies various valuation methodologies, including P/E and P/B ratios, to derive price targets for specific companies, indicating a fair valuation based on historical averages [22][28][35]. - For example, Zhejiang Shuanghuan Driveline is assigned a 20x 2025e P/E, while Jiangsu Hengli Hydraulic is assigned a 25x 2025e P/E, reflecting its undervaluation and higher long-term growth potential [22][35].