Market Performance - On June 9, the four major A-share stock indices rose across the board, with the Shanghai Composite Index up 0.43% to 3399.77 points, the Shenzhen Component Index up 0.65% to 10250.14 points, the ChiNext Index up 1.07% to 2061.29 points, and the STAR 50 Index up 0.6% to 997.61 points [2]. - Market turnover was 1.3127 trillion yuan, an increase of 135.4 billion yuan from the previous day. Among industry sectors, medicine and biology (+2.3%), agriculture, forestry, animal husbandry and fishery (+1.72%), and textile and apparel (+1.61%) led the gains, while food and beverages (-0.43%), automobiles (+0.03%), and household appliances (+0.04%) led the losses [2]. - In terms of market strength, IM > IC > IF > IH, and the number of rising/flat/falling stocks was 4120/200/1092 respectively. Institutions, main players, large investors, and retail investors in the Shanghai and Shenzhen stock markets had net inflows of 5.7 billion, -5.9 billion, -7.3 billion, and 7.6 billion yuan respectively, with changes of +13.3 billion, +5.9 billion, -8.6 billion, and -10.7 billion yuan respectively [2]. Stock Index Futures Basis and Annualized Yield - The basis of the next-month contracts of IM, IC, IF, and IH was 142.36, 109.65, 53.05, and 40.83 points respectively, with annualized basis yields of -19.08%, -15.74%, -11.38%, and -12.66% respectively, and three-year historical quantiles of 5%, 6%, 3%, and 6% respectively. The futures-spot price difference remained at a low level [3]. Trading Strategy - Recently, small-cap stock indices have had a deep discount, presumably due to the expansion of neutral product scale since this year. As the bond bull market has not restarted, the proportion of short positions in neutral products may still be high, so the deep discount may continue, leading to market fluctuations. A short-term band strategy is recommended [3]. - In the medium to long term, the report maintains a bullish view on the economy. Buying IF, IC, and IM forward contracts on dips is recommended. For near-month contracts, there is a risk of a decline in micro-cap stocks, which may drag down the IC and IM indices, so caution is advised [3]. Treasury Bond Futures Market Performance - On June 9, most yields of treasury bond futures rose. Among the active contracts, the implied interest rate of the two-year bond was 1.344, up 0.53 bps from the previous day; the implied interest rate of the five-year bond was 1.472, up 0.12 bps; the implied interest rate of the ten-year bond was 1.617, up 2.45 bps; and the implied interest rate of the thirty-year bond was 1.95, down 1.63 bps [3]. Cash Bonds - The current active contract is the 2509 contract. The CTD bond of the two-year treasury bond futures is 250006.IB, with a yield change of +0.25 bps, a corresponding net basis of -0.093, and an IRR of 1.85%; the CTD bond of the five-year treasury bond futures is 240020.IB, with a yield change of +0 bps, a corresponding net basis of -0.083, and an IRR of 1.81%; the CTD bond of the ten-year treasury bond futures is 220010.IB, with a yield change of -0.75 bps, a corresponding net basis of -0.094, and an IRR of 1.86%; the CTD bond of the thirty-year treasury bond futures is 210005.IB, with a yield change of -1 bps, a corresponding net basis of -0.162, and an IRR of 1.94% [4]. Trading Strategy - The cash bond market has recently shown a pattern of strong supply and weak demand, but this pattern is expected to change. First, the maturity scale of government bonds in June has increased, and the net supply rhythm of government bonds may become more stable. Second, there is a possibility that the long-term liability cost of insurance companies will be lowered in July. Third, the domestic market risk preference has returned to a defensive style, and the allocation demand for the bond market may increase [5]. - For futures, the CTD bond price of the near-month contracts is low, and the recent IRR level is high, so short sellers have a strong willingness to deliver, putting pressure on the near-month contract prices and causing the far-month contracts to have a premium. The positions of T and TL have increased, while the positions of TF and TS have decreased, indicating strong long positions at the long end, possibly betting on a further decline in future policy interest rates. It is recommended to be short-term long and long-term short, buying T and TL on dips in the short term and hedging T and TL on rallies in the long term [5]. Economic Data - High-frequency data shows that the recent import and export sentiment has rebounded [12].

Core Viewpoint - Australian Capital emphasizes the importance of DPI (Distributions to Paid-In) as a core demand from LPs (Limited Partners) and has developed a unique investment strategy focused on early-stage investments in China, balancing risk and return through careful fund management and exit strategies [1][2][3]. Group 1: Investment Strategy - Australian Capital has adopted a strategy of controlling fund sizes between 200 million to 300 million RMB, with a minimum of 15 projects per fund to balance risk and return effectively [3]. - The firm prioritizes quick capital recovery through exit strategies that do not primarily rely on IPOs, achieving a DPI of 1 in four years and a 100% exit in six years with an IRR exceeding 30% for its first fund [3][4]. - The company has developed a unique "probability theory" for investments, focusing on early-stage projects and aiming to increase the success rate of investments to 50% by applying technical logic to project selection [5][6]. Group 2: Fund Management and Structure - Australian Capital maintains a higher proportion of its own capital in funds, with self-funding ratios reaching 10%-20% since 2015, aiming to increase this to 30%-50% to reduce external fundraising pressure [7][8]. - The firm follows a stable income structure where self-investment returns exceed management fees and fund carry, which is considered a robust model for GP (General Partner) profitability [7][8]. - The transition from a trustee management model to an active investment model is seen as essential for survival in a changing market, with a projected completion timeline of 3-5 years [8].

Group 1: Report Information - Report Title: "TS Contract: Can It Still Be Used for Cash-and-Carry Arbitrage? - Interest Rate Weekly (Week 3 of May)" [1] - Report Date: May 19, 2025 [2] - Chief Analyst: Yan Ziqi, with a practice certificate number of S0010522030002 [2] - Research Assistant: Hong Ziyan, with a practice certificate number of S0010123060036 [2] Group 2: Industry Investment Rating - No industry investment rating is provided in the report. Group 3: Core Views - Since the implementation of reciprocal tariffs on April 3, the bond market's maturity yields have first decreased and then increased. Among treasury bond futures, the TL contract has been strong, while the TS/TF/T main contracts have declined [2]. - The weak performance of the TS contract is due to the previous large premium and the change in the expectation of loose monetary policy. The market's expectation of loose monetary policy changed significantly in Q1, and there are differences in the short - term expectation of loose monetary policy after the double - cut in May. The yield curve has flattened instead of steepening as expected [3]. - As of May 16, the basis of the TS main contract is - 0.07 yuan, and the IRR is 1.79%. The basis has significantly converged, and the IRR is close to the capital interest rate, so the cost - effectiveness of cash - and - carry arbitrage is insufficient [4]. - In the short term, the TS contract may still be in a premium state because of the continuous negative carry. The inversion between R001 and the 2 - year treasury bond maturity yield has decreased from about 60bp at the beginning of the year to 15bp on May 16, and the negative carry phenomenon of some varieties will continue [4]. - Considering that the tight capital situation in Q1 will not repeat, the short - term interest rate has a ceiling and the probability of a sharp decline is low. With the significant convergence of the basis, one can consider participating in the possible rise of the TS contract [4]. Group 4: Analyst and Research Assistant Introduction - Analyst Yan Ziqi is the assistant director of the Research Institute of Hua'an Securities and the chief analyst of fixed income. He has 8 years of experience in sell - side fixed income and equity research, and has won the second place in the 2024 Wind Gold Analyst and the best analyst in the 2023 Choice fixed income industry [12]. - Research Assistant Hong Ziyan is a master of financial engineering from the University of Southern California, covering macro - interest rates, institutional behavior, and treasury bond futures research [12].

Investment Rating - The investment rating for the real estate industry is "Outperform the Market" (maintained) [2][18]. Core Viewpoints - The recent policy changes in Xinyang regarding the sale of existing homes are expected to significantly impact the industry, particularly by reducing the return on invested capital (ROIC) for real estate companies [3][10]. - The shift from a pre-sale to a current sale model will reshape the business model of the industry from a "balance sheet business" to a "profit and loss statement business" [10][13]. - While short-term adjustments are anticipated due to the policy changes, the long-term outlook remains optimistic as the industry transitions to a more sustainable financial model [13]. Summary by Sections Policy Changes - On May 13, Xinyang's housing authority announced measures to strengthen the management of pre-sale housing, including that new projects can only be sold after the main structure is completed, and all new land acquisitions must be sold as existing homes [3]. Financial Impact - The introduction of the current sale system is expected to lead to a significant decline in ROIC, from 12.4% to 2.9%, indicating a reduced attractiveness of the real estate business [7][9]. - The analysis suggests that if pre-sales are eliminated, companies will face either a contraction in their balance sheets or increased interest expenses, leading to a longer investment recovery period and a significant drop in internal rate of return (IRR) [4][9]. Long-term Outlook - The long-term effects of the current sale system will likely result in an increase in the required profit margins for land acquisitions, as companies can no longer rely on quick turnover to maintain high ROIC [10]. - The overall industry profit margins are expected to rise, leading to a shift towards a more stable financial structure characterized by moderate leverage and profitability [10][13]. Market Response - The report anticipates that the market will initially react negatively to the policy changes, but in the medium to long term, the transition to a current sale model will stabilize housing prices and improve the industry's valuation metrics [13][11].

Financial Data and Key Metrics Changes - Consolidated revenue for Q1 2025 was $65.8 million, down from $90.5 million in the prior year period, reflecting a decline in whole asset sales [6][17] - Adjusted EBITDA for Q1 2025 was $3.2 million compared to $9 million in the prior year, primarily due to lower whole asset transactions [7][20] - First quarter gross margin decreased to 27.3% from 31.8% in Q1 2024, attributed to lower whole asset sales which typically carry higher margins [18] Business Line Data and Key Metrics Changes - Asset management segment sales declined by 33.8%, entirely due to lower whole asset sales; however, excluding whole assets, segment revenue increased by 81.7% to $37.5 million, driven by stronger USM sales and a larger active lease pool [7][22] - Tech Ops segment revenue decreased by 15.1% to $26.6 million, anticipated due to the conclusion of a maintenance check line with a large customer [10][22] - The engineered solutions unit saw an increase in AirSafe deliveries, with a backlog totaling $11 million at quarter end [11] Market Data and Key Metrics Changes - The availability of favorably priced feedstock improved significantly in Q1, allowing the company to acquire $43.4 million of feedstock, leading to a 10.4% win rate [8] - The company noted a strong demand for engines, with every engine type in high demand, despite a lack of supply [31] Company Strategy and Development Direction - The company is balancing lease pool expansion against quicker turn whole asset transactions to generate cash and EBITDA [9] - Strategic decisions are being made to pursue longer-term, more predictable contracts in MRO services to better match staffing levels with volume [10] - The company expects to generate new incremental revenue from component MRO facility expansion projects within the next 30 to 60 days [11][14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the underlying fundamentals of the business, despite lower whole asset sales, and expects EBITDA growth to outpace revenue growth for the year [15][21] - The company anticipates a strong recovery in the second half of the year, driven by a robust air safe backlog and efficiency measures implemented [15][22] Other Important Information - The company ended the quarter with $48.9 million in liquidity, consisting of $4.7 million in cash and $44.2 million available on its revolving credit facility [20] - Management emphasized the importance of monitoring progress based on asset purchases and sales over the long term rather than quarterly fluctuations [17] Q&A Session Summary Question: Whole asset sales outlook for 2025 - Management indicated it is difficult to predict whole asset sales but noted they have 21 engines available for trading or leasing, with expectations for a higher amount in the second half of the year [25][27] Question: Demand shifts from airline customers - Management reported that there is currently high demand for engines, with a lack of supply affecting the ability to meet that demand [30][31]