China Investment Compass - Quarterly 3Q25: stay defensive and focus on bottom- up earnings Equity Strategy Stay defensive and focus on earnings China market outperformed in 1Q25 but traded sideways in 2Q. The Liberation Day tariffs drove a broad-based market sell-off in early April, but major global markets rebounded subsequently and largely recovered the losses. Investors we spoke to recently are less concerned about the geopolitical tensions (believing "the worst is over") and have low expectations on any ...

Investment Rating - The report maintains a "Buy" rating for Foxconn Industrial Internet (FII) with a revised target price of Rmb31.11, reflecting an upside potential of 17.9% from the current price of Rmb26.38 [16][17]. Core Insights - FII's 2Q25 net income guidance is between Rmb6.7 billion and Rmb6.9 billion, with a midpoint of Rmb6.8 billion, representing a 31% quarter-over-quarter increase and a 50% year-over-year increase [1]. - The company is experiencing significant growth in cloud computing revenues, projected to exceed 50% year-over-year, and AI server revenues are expected to grow over 60% year-over-year [1]. - FII's revenues from cloud service providers (CSPs) increased by over 150% year-over-year in 2Q25, and revenues from 800G switches are projected to be three times higher than in 2024 [1]. - The report anticipates a compound annual growth rate (CAGR) of 29% for net income from 2025 to 2027, with AI server revenues expected to rise from 29% in 2024 to 68% by 2027 [1]. Financial Projections - The report revises net income estimates upward by 3%, 4%, and 6% for 2025, 2026, and 2027 respectively, due to higher revenue expectations [5]. - FII's revenue projections for 2025E, 2026E, and 2027E are Rmb850.1 billion, Rmb1,130.6 billion, and Rmb1,274.5 billion respectively, reflecting increases of 5%, 10%, and 9% from previous estimates [8]. - The gross profit (GP) for 2025E is revised to Rmb49.9 billion, with operating profit (OP) at Rmb31.4 billion and net income at Rmb27.6 billion [8]. Market Position and Competitive Analysis - FII is positioned as a leading supplier in the AI server market, particularly in rack-level AI servers, supported by a comprehensive supply chain and global production capabilities [5][9]. - The target price is based on a price-to-earnings (P/E) multiple of 16x for 2026E, reflecting a market re-rating on AI servers [10][15].

Investment Rating - The investment rating for HG Tech is "Buy" with an updated 12-month target price of Rmb56, revised from Rmb53, based on a 22x 2026E P/E [1][2][14]. Core Insights - HG Tech pre-announced its 2Q net profit range of Rmb480 million to Rmb540 million, with a mid-point of Rmb510 million, representing a 52% year-over-year increase and exceeding expectations [1]. - The strong profit performance is expected to alleviate investor concerns regarding the profitability of optical transceivers, with key catalysts anticipated in the second half of 2025, including progress in penetrating US markets and domestic demand outlook [1][14]. - The company is positioned for robust long-term growth driven by the AI infrastructure cycle, overseas expansion, and new market penetration [1]. Revenue and Profit Estimates - Revenue estimates for 2025-2026 have been revised upward by 3% to 4.6%, leading to a net profit estimate increase of 4% to 8% [2]. - New revenue projections for 2025, 2026, and 2027 are Rmb15,815 million, Rmb19,233 million, and Rmb22,971 million respectively, reflecting a 4.6% increase for 2025 and 2026, and a 3.0% increase for 2027 compared to previous estimates [6]. - Net income estimates for 2025, 2026, and 2027 are Rmb1,830 million, Rmb2,579 million, and Rmb3,130 million respectively, with increases of 8%, 6%, and 4% compared to prior estimates [6]. Business Segments and Growth Drivers - HG Tech's business segments include optical transceivers, sensors, telecom equipment, and laser tools, with a focus on high-end optical transceivers (800G and 400G modules) expected to drive margin improvement and net profit growth [14]. - The revenue mix for 2024 is projected to be 34% from laser tools, 3% from networking, and 63% from sensors, with shifts expected in 2025 and 2026 [13][11]. - The company is expected to benefit from the increasing attach ratio of optical transceivers, supporting better growth sustainability [1].

Investment Rating - The report maintains a "Buy" rating for Horizon Robotics with a 12-month price target of HK$13.33, indicating an upside potential of 106.0% from the current price of HK$6.47 [11]. Core Insights - The management is optimistic about the growth of autonomous driving (AD) and advanced driver-assistance systems (ADAS) in China, particularly with local car OEMs pushing for urban Navigate on Autopilot features in the mainstream price segment of Rmb150,000 (approximately US$21,000) [2][3]. - Horizon Robotics is focusing on product mix upgrades from ADAS to AD, which is expected to drive an increase in average selling price (ASP) due to enhanced computing power [3]. - The company is committed to increasing its R&D investments, particularly in developing integrated software-hardware solutions, which will allow it to charge software fees based on car shipments rather than project-based fees [7]. Summary by Sections 1. Market Outlook - The total addressable market (TAM) for AD and ADAS is growing, with management highlighting the competitive landscape among local car OEMs as a key driver for increased demand [2]. - The Journey 6 product is identified as a significant driver for shipment increases in the AD solutions segment [2]. 2. Product Development - The transition from ADAS products (e.g., Journey 2 and 3) to more advanced AD products (e.g., Journey 6) is expected to enhance ASP due to the substantial increase in computing power from 4-5 TOPS to 560 TOPS [3]. - Future plans include the development of a higher computing power J7 platform, estimated at around 2000 TOPS, to meet the growing demand for advanced features [3]. 3. R&D Commitment - Horizon Robotics is allocating more resources to R&D, particularly in cloud computing, to develop stronger algorithms and enhance its software-hardware integration [7]. - The company aims to penetrate the majority of car OEMs in China that lack in-house algorithms for advanced ADAS/AD features [7]. 4. Strategic Partnerships - The joint venture with Volkswagen, Carizon, is expected to yield its first car model by the end of 2025, with management anticipating a significant share of Volkswagen's car models in the China market [8].

Investment Rating - The report maintains a "Buy" rating for Lingyi, with a 12-month price target of Rmb11.40, indicating an upside potential of 28.1% from the current price of Rmb8.90 [18][13]. Core Insights - Lingyi's revenues are expected to grow by 23% year-over-year in 2Q25, reaching Rmb11.5 billion, driven by new project contributions and improved seasonality in the second half of 2025 [1][3]. - The gross margin (GM) is projected to improve to 15.7% in 2Q25, up from 15.2% in 1Q25, although still below the 2022/2023 levels of 20.7% and 19.9% respectively [1][3]. - Lingyi's diversification into foldable phones, servers, and AI/AR glasses components is expected to increase revenue contributions to 14% and 18% in 2025 and 2026 respectively [1][2]. Revenue and Earnings Estimates - Revenue estimates for 2025 remain unchanged at Rmb54.5 billion, with net income expected to grow by 43% year-over-year [3][9]. - Earnings revisions indicate a decrease in net income estimates by 11% for 2025, primarily due to lower GM from the automotive and server segments [3][7]. - The report anticipates a compound annual growth rate (CAGR) of 21% in revenues from 2025 to 2027 [3][9]. Financial Metrics - The report projects gross margins to expand from 15.8% in 2024 to 16.6% and 18.2% in 2025 and 2026 respectively [3][11]. - Operating profit margins (OPM) are expected to improve from 6.0% in 2025 to 8.1% in 2027 [3][11]. - The net margin is forecasted to increase to 4.6% and 5.7% in 2025 and 2026 respectively [3][11]. Market Position and Competitive Landscape - Lingyi is expanding its business in foldable phones, servers, robotics, and AI/AR glasses components to reduce concentration risk and capture a larger market share [2][3]. - The company has established partnerships to provide comprehensive manufacturing solutions, which are expected to lower the bill of materials (BOM) costs for clients [2][3]. Valuation - The target price of Rmb11.4 is based on a target P/E multiple of 21.2x 2026E EPS, reflecting a positive correlation between P/E and EPS growth among peers [11][17]. - Lingyi is currently trading at a P/E of 17x for 2026E, which is considered attractive [13][17].

8 July 2025 | 11:12PM HKT Yonyou (600588.SS): Mgmt. call: AI to drive client spending and internal efficiency; Large-scale clients to see sequential recovery We hosted Yonyou management on July 8 in our China Software Corp Call Series (July 7-10). Key discussions focused on (1) Enterprise clients' IT spending, (2) Gen-AI and AI agent monetization, and (3) Efficiency improvement. Overall, post challenging 1Q25 (rev -21% YoY), management expects to see sequential growth in 2Q, supported by improving demand fr ...

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9 July 2025 | 6:20PM HKT Hyperstrong (688411.SS): BESS emerging as solution to China summer heatwave; Maintain Buy on solid demand BESS starts to emerge as grid solution to summer heatwaves, one step further to commercialization. China is entering the peak of summer with "Sanfu Season" heatwave arriving unusually early this year, taxing the stability of the electricity grid. According to NEA, the peak load reached a record high of 1,465GW on Jul 4 2025, up 11% yoy or 150GW, driven by the demand from eastern ...

10 July 2025 | 12:27AM HKT iFlytek (002230.SZ): Mgmt. call: Spark X1 reasoning model upgrades in July; Gen-AI brings opportunities in education / healthcare; Neutral We hosted iFlytek's management on July 9 in our China Software Corp Call Series (July 7-9). Key discussion was around iFlytek's Spark X1 reasoning model, AI education, and enterprise business outlook. Overall, management remains positive on its self-developed foundation models, their competitive products empowered by generative AI, especially i ...

中金公司 景气跃迁：量化视角下的盈利预测与"预期差" 挖掘 20250710 摘要 量化景气投资侧重广度，通过预测股票利润增长排名而非具体数值，以 实现投资收益。理想化测试表明，准确预测 ROE 变化并持仓排名靠前的 股票能带来超额收益，验证了该方法的可行性。 基于财务信息，当期业绩高增长的股票有较高概率延续高增长，但存在 业绩变脸风险。通过引入加速度概念，即增速的变化，可以优化模型， 提高预测准确性并降低风险。 二次趋势外推模型通过考虑利润增速和加速度，在预测胜率（72%）和 假阳性率（13%）方面均优于线性外推和分析师一致预期，显著改善了 盈利预测效果。 "成长趋势共振选股策略"结合优化后的盈利预测模型、分析师预期、估 值和现金流等因子，选取约 30 支股票，自 2009 年回测以来表现优异， 并在样本外跟踪中持续实现超额收益。 引入机器学习方法，特别是 XGBoost 和 LightGBM 等树模型，能处理 更多维度数据并捕捉非线性关系，显著提升盈利预测的准确性，胜率可 达 85%，假阳性率降至 4.7%。 Q&A 景气型投资的传统思路是什么？ 景气型投资是一种主流的机构化投资思路，传统上更多依赖于基本 ...