1. Report Industry Investment Rating No relevant content provided. 2. Core Viewpoints of the Report - In the week of January 19 - 23, the stock market had large - scale net outflows of funds from important index ETFs, but the main indices were still oscillating strongly. The bond market was affected by regulatory news and the central bank's actions, with the 10 - year Treasury bond rate falling. The convertible bond market generally rose, with the CSI Convertible Bond Index up 2.92% [1][7][8]. - In the context of strong equity market sentiment and tight supply - demand of convertible bonds, the convertible bond market continued to rise last week, with the CSI Convertible Bond Index hitting a new high in nearly 10 years. It is recommended to avoid the risks of individual bonds with high redemption pressure and limited upward driving force of the underlying stocks [2][17]. - Looking forward, although the valuation vulnerability of the convertible bond market has further increased, the upward trend of the equity market is clear, providing support for convertible bond valuation. In the coming week, it is advisable to focus on sectors with high performance certainty and low - valuation leading stocks in under - performing industries [3][18]. 3. Summary by Relevant Catalogs 3.1 Market Focus (January 19 - 23) - **Stock Market**: There were large - scale net outflows of funds from important index ETFs, but the main indices were oscillating strongly with daily trading volume above 2.5 trillion yuan. The "15th Five - Year Plan" for power grid investment boosted the power grid equipment sector, and precious metals rose significantly due to global geopolitical situations. Different sectors showed fragmented performance on different days, and most Shenwan primary industries rose, with building materials, petroleum and petrochemicals, etc. leading the gains, while banks, communication, etc. lagging behind [1][7][8]. - **Bond Market**: The economic data announced last week was in line with expectations. The mid - week capital situation was tight but improved after the central bank's intervention. News of regulatory intention to cool the equity market was favorable for the bond market sentiment. The 10 - year Treasury bond rate closed at 1.8298% on Friday, down 1.26bp from the previous week [1][7][8]. - **Convertible Bond Market**: Most convertible bond individual securities rose. The CSI Convertible Bond Index was up 2.92% for the week, the median price was up 3.01%, and the arithmetic average parity was up 3.66%. The overall conversion premium rate decreased by 0.96% compared with the previous week. The textile and clothing, steel, and petroleum and petrochemical sectors in the convertible bond market led the gains, while social services, media, etc. lagged behind. In terms of individual bonds, Jiamei, Fuxin, etc. had the top gains, while Dongshi, Yinbang, etc. had the top losses. The total trading volume of the convertible bond market last week was 4395.97 billion yuan, with an average daily trading volume of 879.19 billion yuan, a decrease from the previous week [1][8][12]. 3.2 Views and Strategies (January 26 - 30) - **Risk Avoidance**: Strengthen the expected management of individual bond redemptions. Due to the "unexpected redemptions" of some targets at the beginning of the week, the valuation of high - parity convertible bonds was compressed. It is recommended to avoid the risks of individual bonds with high redemption pressure and limited upward driving force of the underlying stocks by considering factors such as remaining term and short - term stock price demands [2][17]. - **Investment Suggestions**: Although the valuation vulnerability of the convertible bond market has increased, the upward trend of the equity market provides support for convertible bond valuation. In the week of January 26 - 30, it is advisable to focus on sectors with high performance certainty such as semiconductor equipment and materials, chemical industry, lithium battery, CXO, etc., and low - valuation leading stocks in under - performing industries for absolute return funds [3][18]. 3.3 Valuation Overview - As of January 23, the average conversion premium rates of equity - biased convertible bonds in different price ranges were at high percentile values since 2010 and 2021. The average YTM of debt - biased convertible bonds with a parity below 70 yuan was - 5.66%, at the 0%/1% percentile since 2010 and 2021. The average implied volatility of all convertible bonds and the difference between the implied volatility and the long - term actual volatility of the underlying stocks were also at high percentile values [19]. 3.4 Primary Market Tracking - **Last Week (January 19 - 23)**: Aiwei and Longjian convertible bonds announced their issuance, and no convertible bonds were listed. Aiwei Convertible Bond has a scale of 19.01 billion yuan, and Longjian Convertible Bond has a scale of 10 billion yuan [26][27]. - **Next Week (January 26 - 30)**: No convertible bonds are announced for issuance, and Lianrui Convertible Bond will be listed, with a scale of 6.95 billion yuan [28][29]. - **Overall Situation**: As of January 23, there were 97 convertible bonds to be issued, with a total scale of 1522.3 billion yuan, including 8 that have been approved for registration, with a total scale of 61.6 billion yuan [30].

Report Industry Investment Rating No relevant content provided. Core Viewpoints of the Report - Last week, the CSI Convertible Bond Index rose 1.08%, with increased weekly amplitude, and the equity - style convertible bonds with "high price and high conversion premium" remained active. The balance - weighted increase of debt - biased convertible bonds was 0.03%, balanced convertible bonds rose 0.19%, and equity - biased convertible bonds rose 3.87%, further widening the style excess. The balance - weighted conversion premium rate of convertible bonds with an absolute price above 130 yuan approached the historical high [2][10]. - The "leverage" of equity - style "high - price and high - premium" convertible bonds can still explain the current valuation system changes. Convertible bonds have a certain degree of "leverage", and the investment behavior of secondary bond funds also indicates that convertible bonds are a leveraged tool for stocks [15][19]. - Redemption disturbances have begun to marginally affect the performance of equity - style convertible bonds. Some convertible bonds that have announced forced redemptions experienced a double - kill of stocks and bonds, and some equity - style convertible bonds that have not met the forced - redemption conditions also showed weak performance with a significant compression of the conversion premium rate [21]. - The strong performance of new convertible bonds is an important support for the "high - price and high - premium" situation, but potential regulatory policy risks need to be noted. As of last Friday, the balance - weighted implied volatility of convertible bonds listed within 6 months exceeded 85%. Considering the increased regulatory guidance on the equity market, there may be specific requirements for new convertible bonds [3][23]. - Historically, unexpected forced redemptions have a short - term impact on the valuation of equity - style convertible bonds. After the impact, it is recommended to focus on equity - style varieties with a higher certainty of non - forced redemption [29]. Summary According to the Directory 1 When "High - price and High - premium" Convertible Bonds Encounter Potential Forced - redemption Risks - **Market Performance**: The CSI Convertible Bond Index rose 1.08% last week. Equity - style convertible bonds with "high price and high conversion premium" were active. In terms of style, debt - biased convertible bonds rose 0.03%, balanced convertible bonds rose 0.19%, and equity - biased convertible bonds rose 3.87%. The balance - weighted conversion premium rate of convertible bonds with an absolute price above 130 yuan was close to the historical high [2][10]. - **Valuation Explanation**: The "leverage" of convertible bonds can explain the current valuation system. The convertible bond valuation is related to the weighted index of underlying stocks, and the investment behavior of secondary bond funds also shows that convertible bonds are a leveraged tool for stocks [15][19]. - **Redemption Impact**: Redemption disturbances affected the performance of equity - style convertible bonds. Some bonds with announced forced redemptions had a double - kill of stocks and bonds, and some bonds that had not met the forced - redemption conditions also had a compressed conversion premium rate [21]. - **New Bond Support and Risks**: The strong performance of new convertible bonds supported the "high - price and high - premium" situation. As of last Friday, the balance - weighted implied volatility of convertible bonds listed within 6 months exceeded 85%. There may be regulatory risks for new convertible bonds [3][23]. - **Forced - redemption Impact on Valuation**: Historically, in the 5 trading days before an unexpected forced - redemption event, the valuation of equity - style convertible bonds was likely to be compressed, with a median compression amplitude of about 1 - 2 percentage points. After the event, there was no obvious pattern in the valuation performance. It is recommended to focus on equity - style varieties with a higher certainty of non - forced redemption [29]. - **Forced - redemption Counting Details**: Multiple convertible bonds are in the forced - redemption counting stage, and some are close to triggering forced redemptions. For example, Fuli Convertible Bond, Sailong Convertible Bond, and Tianjian Convertible Bond need at least 1 more day to trigger forced redemptions [35].

Group 1 - The remaining maturity of convertible bonds has significantly shortened to around 2.53 years, with nearly 40% of the bonds having a remaining maturity of less than 2 years, indicating a serious aging phenomenon in the financial and consumer sectors [4][8][10] - If the issuance of new convertible bonds does not increase significantly in the short term, the weighted average remaining maturity is expected to decrease by approximately 0.6 years annually, potentially reaching around 2.0 years by the end of 2026, placing the market in an "ultra-short duration" state [4][10][18] - The valuation of convertible bonds generally follows the rule of decay with remaining maturity, where bonds with less than 2 years of maturity begin to show a declining valuation trend, particularly accelerating when the maturity falls below 1 year [11][17][26] Group 2 - The pressure of potential valuation decline is significant in the context of shortening durations, with a focus on trading opportunities within box ranges, as many convertible bonds are likely to face redemption or maturity [3][50][72] - As of November 21, 2025, approximately 29% of convertible bonds with a remaining maturity of less than 2 years have been redeemed through strong redemption, while 23% have matured, indicating substantial potential maturity pressure [50][53][66] - The current market environment shows that convertible bonds with a remaining maturity of less than 2 years are generally overvalued compared to historical data, suggesting a need for caution regarding potential valuation declines [18][23][44]

Core Insights - The demand side indicates that the long bull market in equities, combined with the stock-bond seesaw effect, may lead to continued outflow of funds from the bond market, while the demand for convertible bonds remains resilient [1] - On the supply side, the prevalence of strong redemptions in convertible bonds is likely to continue, but issuance is expected to improve starting in 2026, leading to a potential new-old transition in market structure [1] - From a long-term perspective, convertible bonds are expected to enter a slow bull market alongside equities, but their performance is likely to be weaker than stocks and stronger than pure bonds [1] Demand Side Analysis - The stock-bond seesaw effect suggests that funds may continue to flow out of the bond market, with solid returns from equity markets driving this trend [2] - The core advantage of fixed income plus funds lies in their diversified asset allocation, which balances the risk-return characteristics of stocks and bonds [2] - Despite a slight outflow of funds recently, the demand for convertible bonds remains robust, with the share and scale of secondary bond funds significantly expanding in Q3 2025 [8] Supply Side Analysis - The convertible bond market saw a rapid contraction post-2015 bull market, with the market balance dropping to just 13.3 billion yuan by the end of 2015, a decrease of over 120 billion yuan from the previous year [11] - As the equity bull market continues, some existing convertible bonds will likely have strong redemption windows, and the prevalence of strong redemptions is expected to persist [11] - Starting in 2026, the issuance of convertible bonds is projected to improve, with an estimated supply of around 50-60 billion yuan, slightly better than in 2025 [16] Valuation and Market Dynamics - The historical valuation trends of convertible bonds generally follow the movements of the equity market, with the premium rate primarily driven by balanced and equity-oriented convertible bonds [19] - In a bull market for equities, investors may prefer balanced and equity-oriented convertible bonds to capture higher returns [19] - The current market faces challenges due to limited capacity for fund absorption and high price valuations, which compress the yield space for convertible bonds [19][20]

Group 1 - The market is currently in a state of fluctuation, with attempts to break out of the range but lacking decisive upward momentum. The total A-share index closed at 6356.50 on November 14, down 0.47% from November 7, while convertible bonds rose by 0.52 during the same period [1][9] - The semiconductor and AI computing indices have been in continuous adjustment since October 9, with declines of 11.05% and 9.37% respectively as of November 14. This adjustment has led to a significant decrease in market congestion, indicating a potential rebound opportunity when favorable conditions arise [2][44] - The valuation of convertible bonds has seen significant stretching, with the valuation center for bonds at a parity of 80 yuan rising to 54.64%, an increase of 1.75 percentage points from November 7. This suggests that the market is currently valuing convertible bonds at historically high levels [23][27] Group 2 - The report highlights the need to focus on the semiconductor and AI computing sectors for potential rebound opportunities, as these sectors have shown significant adjustments and reduced congestion levels, making them more susceptible to upward movements when positive news emerges [2][44] - In a bull market environment, convertible bonds that do not undergo forced redemption tend to experience significant valuation recovery after the T+1 day. Conversely, those that do face forced redemption typically see an average decline of 3% on the T+1 day, but recovery is still possible in a bull market [3][61] - The report indicates that the current market environment is characterized by a search for new leading sectors, with consumer and new energy sectors being tested for strength. However, the sustainability of these sectors remains uncertain as they have not yet established a solid upward trend [1][16]

Report Summary 1. Report Industry Investment Rating No industry investment rating is provided in the report. 2. Core Viewpoints - The length of the non - call commitment period for convertible bonds has stabilized at around 100 - 150 days since H2 2024, and the length has little impact on bond valuation [1][12]. - The necessity of paying attention to callable convertible bonds has increased. In H2 2025, the post - call yield of convertible bonds has increased, mainly contributed by the underlying stocks [2][3]. - Last week, the convertible bond market rose slightly, and the valuation decreased. Four convertible bonds announced early redemption, and three convertible bonds were listed, with a total pending issuance size of approximately 16.29 billion yuan [4][5]. 3. Summary by Directory 3.1 2025H2 Changes in Convertible Bond Call and Non - Call - The length of the non - call commitment period has stabilized at 100 - 150 days after reaching a peak of around 200 days in early 2024. The change is due to the improvement of information disclosure rules and the weak performance of the equity market [1][10]. - The length of the commitment period has little impact on convertible bond valuation. Since early 2025, the conversion premium rate on the day after the non - call announcement has risen from 2% to around 8%, but there is no significant difference among different commitment period groups [12]. - The frequency and proportion of callable convertible bonds have increased recently. In H2 2025, the post - call performance of convertible bonds has been strong, with an average increase of 0.5% in 20 trading days after the call announcement. Buying on T + 1 and holding until T + 20 can yield an average return of 3.0% [2][17][18]. - The strength of callable convertible bonds in H2 2025 is mainly due to the underlying stocks. The conversion premium rate of callable convertible bonds in 2025 is lower than the historical average, and the underlying stocks of callable convertible bonds in H2 2025 have performed significantly better than before [3][19]. 3.2 Market Review: Convertible Bonds Rose Slightly Weekly, and Valuation Declined - **Weekly Market Performance**: Last week, major stock indexes rose, and the convertible bond market rose slightly. The Shanghai Composite Index rose 1.52%, the Shenzhen Component Index rose 2.65%, and the CSI Convertible Bond Index rose 0.43%. There are 442 issued and outstanding convertible bonds with a balance of 611.817 billion yuan [26]. - **Valuation Performance**: The weighted average closing price of convertible bonds was 131.35 yuan, up 0.22% from the previous week. The conversion premium rate of the convertible bond market's par - value fitting was 29.94%, down 0.21 pct from the previous Friday. The premium rates of convertible bonds with different ratings and scales changed differently [36]. 3.3 Terms and Supply: Four Convertible Bonds Announced Call, Total Pending Issuance Size Approximately 16.29 Billion - **Terms**: As of September 12, Hao 24, Jing 23, Songyuan, and Lingyi convertible bonds announced early redemption; Tianyuan and Borui convertible bonds announced non - early redemption; Montai, Rundong, and other convertible bonds announced expected satisfaction of call conditions. No convertible bond announced a proposal for downward revision by the board of directors last week [4][57]. - **Primary Market**: Last week, Shenglan Zhuan 02, Jinwei, and Kaizhong convertible bonds were listed, with a total scale of 2.051 billion yuan. There are 4 listed companies that have obtained approval for convertible bond issuance, with a proposed issuance scale of 8.302 billion yuan. The total pending issuance size is approximately 16.29 billion yuan [5][60][67].

Summary of Conference Call on Convertible Bond Market Industry Overview - The convertible bond market has experienced a significant adjustment, leading the stock market in this trend. Recent stabilization has been noted, but high-priced and small-cap convertible bonds have seen substantial declines, while large and mid-cap bonds remain relatively stable. Current bond prices are around 128 RMB, with premium rates at historical highs, necessitating attention to bonds with high redemption expectations, such as Jintian, which have limited upside potential [1][4]. Key Insights and Arguments - **Market Performance**: The convertible bond market remains active despite stock market volatility, with daily trading volumes between 700 billion to 900 billion RMB. The market's adjustment has been more pronounced than that of the stock market, with the Zhongzheng Convertible Bond Index dropping 2.82% on a specific day [2]. - **Future Outlook**: A positive outlook is maintained for the period from September to December, although some adjustments are expected. High-priced, mid-priced, and small-cap bonds have seen significant declines, while large and mid-cap bonds are more stable. Bonds with high premium rates or high P/E ratios should be excluded from investment considerations [3][12]. - **Selection Strategy**: The selection of convertible bonds is categorized into three types: - **Core Holdings**: Low-volatility bank bonds held for 6 months to 3 years. - **Allocation Type**: Focused on sectors like robotics and low-altitude economy, held for 1 to 6 months. - **Trading Type**: Driven by short-term events such as restructuring or shareholder changes, focusing on small-cap stocks with high turnover rates [7][10]. - **Risk Management**: Approximately 18 high-risk bonds have been identified for exclusion, including Fangyuan, Dongfang Shishang, and Wenke, due to management issues or poor financial conditions. Emphasis is placed on managing positions and optimizing investment portfolios [5][12]. Additional Important Content - **Bond Classification by Redemption Status**: Convertible bonds can be classified based on their redemption status, which influences their price ceilings and investment strategies. Categories include bonds unlikely to be redeemed in three months, those approaching redemption, and those with low conversion values [9][12]. - **Investment Opportunities**: Specific sectors such as solid-state batteries and photovoltaic panels are highlighted for their potential. Companies like Enjie and Tiantian Tianci are noted for their attractive valuations and market positions [6][20]. - **Performance Comparison**: Enjie and Tiantian Materials are both leaders in the lithium battery industry, but Enjie shows better investment value due to lower premium rates and a more favorable market position [21][22]. - **Operational Strategies**: For bonds nearing redemption, such as Lilo and Niutai, the recommendation is to avoid long-term investments due to limited upside and higher risks. Instead, focus on bonds with potential for price appreciation based on underlying stock performance [18]. - **Factor Selection Methodology**: Key indicators for selecting convertible bonds include stock valuation, terms, and industry conditions. The focus is on strong redemption clauses and overall market sentiment [19][25]. - **Adjustments in Selection Strategy**: Current strategies emphasize the importance of terms in response to market pressures and frequent redemptions, with a focus on small-cap stocks and high turnover rates to enhance overall portfolio performance [26].

Investment Rating - The investment rating for the company is "Buy" with a target price of RMB 12.82 [8]. Core Insights - The company expects a year-on-year increase in credit, but retail demand and risk improvement trends still need observation [1]. - Deposit re-pricing is at a peak, leading to continuous optimization of liability costs [1]. - The company anticipates a strong redemption of convertible bonds, which will solidify its capital base [1]. Credit and Asset Quality - In 2024 and Q1 2025, the company's loans increased by 14.3% and 14.7% year-on-year, with new loans amounting to RMB 157.3 billion and RMB 89.7 billion respectively [2]. - The asset quality remains stable, with a non-performing loan (NPL) ratio of 0.83% in Q1 2025, unchanged from the previous quarter [2]. Interest Income and Performance - The net interest income in Q1 2025 rose by 17.8% year-on-year, with a net interest margin improvement of 6 basis points compared to 2024 [3]. - The company's revenue and net profit growth rates were 6.5% and 7.1% respectively, indicating a favorable performance compared to peers [3]. Strategic Direction - The new chairman has invigorated the bank's reform momentum, establishing a clear strategic path focused on reducing cost-to-income ratios and enhancing asset quality management [4]. - As of June 4, 2025, the company has a convertible bond balance of RMB 57 billion, which is expected to enhance its capital adequacy ratio upon conversion [4]. Profit Forecast and Valuation - The company maintains a profit forecast of RMB 21.8 billion, RMB 23.7 billion, and RMB 26.1 billion for the years 2025 to 2027, with year-on-year growth rates of 8.1%, 8.8%, and 10.0% respectively [5]. - The target price corresponds to a price-to-book (PB) ratio of 0.82 times for 2025, indicating a valuation premium due to effective strategic transformation and broad business expansion potential [5].

Investment Rating - The investment rating for the company is maintained as "Buy" with a target price of RMB 12.82 [8]. Core Insights - The company is expected to see steady growth in credit, with a year-on-year increase anticipated, although retail demand and risk improvement trends still need observation [1]. - The bank is approaching a peak in deposit repricing, leading to continuous optimization of liability costs [1]. - The conversion of convertible bonds is expected, which will solidify the company's capital base [1]. Summary by Sections Credit and Asset Quality - In 2024 and Q1 2025, the company's loans increased by 14.3% and 14.7% year-on-year, with new loans amounting to RMB 157.3 billion and RMB 89.7 billion respectively [2]. - The asset quality remains stable, with a non-performing loan (NPL) ratio holding steady at 0.83% in Q1 2025 [2]. Interest Costs and Performance - The net interest income in Q1 2025 rose by 17.8% year-on-year, with a measured interest margin improvement of 6 basis points compared to 2024, primarily due to reduced liability costs [3]. - The company's revenue and net profit growth rates were 6.5% and 7.1% respectively, indicating a favorable position compared to peers [3]. Strategic Direction and Convertible Bonds - The new chairman has invigorated the bank's reform momentum, establishing a clear strategic path focused on reducing cost-to-income ratios and enhancing asset quality management [4]. - As of June 4, 2025, the bank's convertible bonds reached a conversion price, with an unconverted balance of RMB 5.7 billion, representing 6% of the market capitalization [4]. Profit Forecast and Valuation - The forecasted net profit for 2025-2027 is RMB 21.8 billion, RMB 23.7 billion, and RMB 26.1 billion, with year-on-year growth rates of 8.1%, 8.8%, and 10.0% respectively [5]. - The target price corresponds to a price-to-book (PB) ratio of 0.82 times, indicating a valuation premium due to effective strategic transformation and broad business expansion potential [5].

Core Insights - In the first half of 2024, the proportion of convertible bonds redeemed through strong redemption reached 52.94% due to a sluggish market environment [1] - In the second half of 2024, the strong redemption rate increased to 64% driven by rising underlying stock prices and favorable policies [1] - The strong redemption rate for convertible bonds has approached 70% this year, indicating a significant increase [1] Industry Analysis - The stable performance of the A-share market has been a crucial factor contributing to the increase in early redemption of convertible bonds, enhancing the valuation and vitality of existing convertible bonds [1] - The growing number of strong redemption cases is expected to further enhance the attractiveness of the convertible bond market, potentially attracting more capital inflow [1]