Monetary Policy - The People's Bank of China is expected to implement two interest rate cuts in 2026, each by 10 basis points, with room for further reductions in reserve requirements and interest rates [3][4] - The average reserve requirement ratio for financial institutions is currently 6.3%, indicating potential for a reduction [3] Fiscal Policy - The fiscal deficit rate is projected to increase from 11% of GDP in 2025 to 12.2% in 2026, with overall spending expected to increase in key areas [3][4] - The Ministry of Finance emphasizes that the total scale of fiscal deficits, debt, and expenditures will be maintained at necessary levels to ensure spending does not decrease [4] Economic Growth - China's exports are anticipated to remain strong in 2026, driven by global economic growth, expansion into emerging markets, and China's competitive product strength [5] - In 2025, China's total foreign trade reached 45.47 trillion yuan, a 3.8% increase year-on-year, maintaining its position as the world's largest goods trader [4][5] Investment Outlook - Investment performance in 2026 is expected to improve compared to 2025, with significant projects in technology, AI, and power grids likely to accelerate [5] Consumer Trends - Consumption is expected to show structural differentiation, with service consumption growth outpacing that of goods consumption in 2026 [6]

Core Viewpoint - The company, Tianzheng Electric (605066), has indicated that its sales expense ratio varies significantly based on the sales model, with distribution-focused companies averaging around 5% and direct sales companies around 10% [1] Group 1: Sales Expense Trends - The company's sales expenses have been on the rise in recent years due to increased investment in developing major industry clients and project business expansion [1] - The company has been investing more resources in various sectors such as new energy, electricity, communications, data centers, oil and petrochemicals, and industrial equipment, leading to a dual-driven model of major client development and distribution channels [1] - The proportion of direct sales has significantly increased, contributing to higher sales expenses and a higher sales expense ratio [1] Group 2: Resource Optimization and Future Goals - While increasing investments, the company is actively optimizing resource allocation by focusing on key industries such as computing power, energy storage, charging and swapping, power grids, and overseas markets [1] - In the first three quarters of 2025, the company aims for a year-on-year decrease of 5.05% in sales expenses and a 0.39 percentage point decrease in the sales expense ratio [1] - The company seeks to achieve significant breakthroughs in key industries and markets to enhance the effectiveness of sales expenses and establish a competitive advantage [1]

Report Industry Investment Rating - Not provided in the document Core Views of the Report - In 2026, the pricing logic of aluminum metals with imagination since the fourth quarter of this year will continue. Although the year - on - year growth rate of apparent demand for aluminum metals is expected to decline further, the report remains optimistic about the unilateral direction of aluminum prices, smelting profits of aluminum plants, and price volatility due to the likely low - growth global supply [1][54][315]. - For alumina, the market is likely to see over - supply. It is recommended to sell on rebounds. The profit - grabbing ability of alumina in the industrial chain will remain weak in 2026 [196][319]. - For recycled cast aluminum alloys, prices will generally follow aluminum prices and have a certain upward elasticity. The price - to - electrolytic aluminum ratio of ADC12 is expected to rise, and its price may exceed the 2025 high [7][324]. - In 2026, key structural strategies include cross - border arbitrage, calendar spread arbitrage, cross - variety arbitrage, and over - the - counter options [8][327]. Summary by Relevant Catalogs 1. Review of 2025 Market and Main Driving Logic of Three Aluminum Products 1.1 Electrolytic Aluminum (AL) - In 2025, the aluminum price showed a low - volatility and convergent pattern for most of the time, with the annual low higher than that in 2024 and the high failing to break through the 2024 high. By the end of 2025, the price increase was 11.0%, lower than that of copper and tin [11]. - The main reasons were the "double - weak" supply - demand pattern and the lack of a clear macro - trading theme. However, since October, with the positive impact of AI - driven power demand on the supply - demand pattern, combined with stock - futures linkage, the aluminum price broke through the convergent pattern [12][14]. 1.2 Alumina (AO) - In 2025, alumina prices fell by 41.1%. In the first half of the year, there was a unilateral decline, and in the second half, there were two "advance - to - retreat" style declines. The main reason was the over - supply and inventory accumulation [17]. 1.3 Recycled Cast Aluminum Alloy (AD) - In 2025, the price center of recycled cast aluminum alloy moved up, generally following the electrolytic aluminum price. The price was supported by the supply shortage of scrap aluminum, especially in the second half of the year after the futures listing [23][24]. 1.4 Strategy Review of Three Aluminum Products - Cross - border arbitrage: In 2025, the most profitable position was the long - LME aluminum and short - SHFE aluminum (positive arbitrage), with a maximum annualized return of over 20% [26][28]. - Cross - variety arbitrage: Copper - aluminum arbitrage, alumina - aluminum arbitrage, alumina - caustic soda arbitrage, and aluminum - aluminum alloy arbitrage provided many profitable strategies [31][34]. - Calendar spread arbitrage: The basis and calendar spread structure of aluminum were generally flat. The basis opportunities of alumina and aluminum alloy were stronger than the calendar spread opportunities [44][45]. 2. Electrolytic Aluminum: Can the "Gathering of Small Demands" and Supply Stories Boost Elasticity? 2.1 Resilience of Primary Aluminum Demand - AI - related industries such as computing centers, energy storage, the US power grid, and robots, as well as military applications and "aluminum replacing copper," are expected to contribute about 1.2 - 1.6 percentage points to China's primary aluminum demand growth rate in 2026 [56][156]. - "Light and vehicle" consumption growth contribution will decline to + 0.1 percentage points, mainly due to the decline in photovoltaic demand [107][114]. - Traditional "foundation, infrastructure, and electricity" and manufacturing industries are expected to contribute 0 - 1 percentage point to the demand growth rate [116][117]. - In 2026, China's exports of aluminum products and aluminum products are expected to increase slightly, contributing 0.5 - 1 percentage point to the demand growth rate [155][156]. 2.2 Key Risks for the Bullish View - China's electrolytic aluminum production capacity ceiling is approaching, and in 2026, the production growth rate is expected to be about + 1.7%. The main risk is the potential increase in production capacity if green - power smelting can break through the ceiling [157][158][163]. - Overseas supply, especially from Indonesia, is a major risk. Although the new production in 2026 is expected to be at a low - growth rate, the power supply conditions need to be closely monitored [165][173][179]. 2.3 Supply - Demand Balance of Primary Aluminum - In China, under the baseline and optimistic scenarios in 2026, the annual shortage is expected to be 12.4 - 25.8 tons, and the inventory accumulation pressure in the first quarter is controllable [2][316]. - Globally, the supply - demand balance is expected to be in a shortage range of 19 - 82 tons, with a median of about 50 tons. Considering the production cut of the Mozambique aluminum plant, the global shortage may exceed 50 tons [2][187][316]. 3. Alumina: Where is the Bottom in the Dilemma between Fundamental Drivers and Valuation? 3.1 Supply Rigidity Remains Unsolved, and the Over - Supply Pattern is Hard to Change - As of the end of 2025, the production of alumina remained rigid. Although high - cost producers have suffered losses for two months, the production has not decreased significantly. However, there may be large - scale production cuts or maintenance in January - February [197][198]. - In 2026, there is still a large - scale new investment in alumina production capacity. The annual average growth rate of alumina production is expected to be about 5.3%, and the production - demand gap will be large [204][205]. - Overseas alumina production capacity is also increasing. Although there is a risk of overseas supply impacting the Chinese market, the Chinese market's production increase is more certain, and exports may exceed 2025 [210][211]. - In 2026, the supply - demand balance of alumina in China and globally is expected to be in a serious over - supply situation, but there are uncertainties in the inventory accumulation in the second half of the year [228][229]. 3.2 Under the Over - Supply Pattern, the Cost - Based Pricing of AO Continues - In 2026, the supply of Guinea bauxite is expected to be abundant, with a potential increase of 3693 - 6300 tons. If the monthly arrival in China exceeds 1530 tons, the supply of bauxite in China will be stable [240][241]. - Alumina's profit - grabbing ability in the industrial chain is expected to remain weak in 2026, mainly due to the decline in bauxite prices and the optimization of production capacity structure [258]. 4. Recycled Cast Aluminum Alloy: The Contradiction at the Raw Material End is Prominent, and the Ratio Center Rises 4.1 The Ratio Center of Scrap Aluminum to Electrolytic Aluminum Tends to Rise - The actual shipment volume of scrap aluminum in 2025 was lower than expected. The increase in imports did not effectively alleviate the supply shortage. The main reason was the mismatch between the supply and demand growth rates of scrap aluminum [262][271]. - The cancellation of the tax rebate policy has increased the cost of recycled aluminum enterprises, and the EU's possible export tariff on scrap aluminum may exacerbate the global supply shortage [291][296]. 4.2 Assessment of Supply and Demand of Recycled Aluminum Alloys - In 2025, the expansion rate of recycled aluminum alloy production capacity slowed down, but the capacity utilization rate was still low. In 2026, the production capacity growth rate is expected to slow down, and some production capacity may exit [300][301]. - The demand for recycled aluminum alloys has certain resilience, but the industry is still in an over - capacity situation. ADC12 is a cost - based pricing product, and the cost - pricing logic will be more obvious [307]. 5. Trading Themes to Watch in 2026 5.1 Unilateral Judgment of Electrolytic Aluminum - In 2026, the pricing logic of aluminum with imagination will continue. Although the apparent demand growth rate is expected to decline, the report is optimistic about the price, smelting profit, and price volatility. The main risks are macro - economic recession and over - production in Indonesia [315][318]. 5.2 Unilateral Judgment of Alumina - It is recommended to sell on rebounds. The over - supply pattern is difficult to change in 2026. The profit - grabbing ability in the industrial chain will remain weak, and the main risks are the introduction of a "production capacity ceiling" policy and bauxite supply disruptions in Guinea [319][323]. 5.3 Unilateral Judgment of Recycled Cast Aluminum Alloy - The price will generally follow the electrolytic aluminum price and has a certain upward elasticity. The main risks are the continuous release of new production capacity and lower - than - expected automobile consumption growth [324][326]. 5.4 Structural Strategies - Cross - border arbitrage: Positive arbitrage in the first half of the year and possible reverse arbitrage in the second half [327]. - Calendar spread arbitrage: Selectively conduct positive arbitrage [327]. - Cross - variety arbitrage: Short caustic soda based on alumina production cuts; buy aluminum and short copper when the copper - aluminum ratio rises too fast; conduct spread arbitrage between electrolytic aluminum and recycled cast aluminum alloy [327]. - Over - the - counter options: Regularly implement the low - level buying strategy - enhanced accumulative purchase [327].

Core Viewpoint - The industrial control and power equipment industry shows strong growth in Q3 2025, with significant increases in revenue and net profit, indicating a high level of industry prosperity [1][2]. Group 1: Industry Performance - The industry reported a revenue of 480.9 billion yuan for Q1-Q3 2025, a year-on-year increase of 11%, and a net profit of 40 billion yuan, up 17% year-on-year [1][2]. - In Q3 2025, the revenue reached 171.5 billion yuan, reflecting a 9% year-on-year growth, while net profit was 14.5 billion yuan, up 15% year-on-year [1][2]. - The overall gross margin for the industry in Q3 2025 was 22.7%, showing a decrease of 0.8 percentage points year-on-year and 0.5 percentage points quarter-on-quarter [1][2]. Group 2: Cash Flow and Liabilities - The operating cash flow for Q3 2025 was a net inflow of 23.4 billion yuan, representing a 23% increase year-on-year [1][2]. - Contract liabilities and inventory increased by 9% and 24% respectively compared to the beginning of the year [1][2]. Group 3: Segment Analysis - The industrial control sector saw a revenue of 101.7 billion yuan for Q1-Q3 2025, with a 21% year-on-year increase, and a net profit of 8.8 billion yuan, also up 21% year-on-year [3]. - In Q3 2025, the industrial control segment achieved a revenue of 38.5 billion yuan, a 21% year-on-year increase, and a net profit of 2.95 billion yuan, up 14% year-on-year [3]. - The power cable segment experienced a revenue increase of 6.36% year-on-year, but net profit decreased by 42.46% [4]. - The ultra-high voltage/high voltage segment saw a revenue increase of 5.37% year-on-year, with net profit rising by 48.51% [4]. Group 4: Future Outlook - The second equipment segment is showing signs of accelerated growth, with Q3 2025 revenue reaching 26.9 billion yuan, a year-on-year increase of 18.5% [5]. - The gross margin for the second equipment segment in Q3 2025 was 26.4%, down 2.7 percentage points year-on-year, while the net profit margin was 10.3%, down 1.0 percentage point year-on-year [5].

Market Overview - The three major A-share indices collectively declined, with the Shanghai Composite Index down 0.24%, the Shenzhen Component Index down 1.07%, and the ChiNext Index down 1.58% [1] - The total trading volume in the Shanghai, Shenzhen, and Beijing markets reached 12,702 billion yuan, an increase of 22 billion yuan compared to the previous day [1] - Over 4,000 stocks in the market experienced declines [1] Sector Performance - The oil and gas extraction and services, insurance, brain-computer interface, banking, and influenza sectors saw the largest gains [1] - Conversely, the photovoltaic equipment, cultivated diamonds, controllable nuclear fusion, phosphorus chemical, battery, military equipment, and photolithography concept stocks faced the most significant declines [1] ETF Performance - The innovative drug sector rebounded across the board, with the S&P Biotechnology ETF, Hong Kong Stock Connect Innovative Drug ETF, and NASDAQ Biotechnology ETF rising by 3.87%, 2.94%, and 2.86% respectively [1] - The Hong Kong Stock Connect medical ETFs, including the Fidelity and Huatai-PineBridge Innovative Drug ETFs, both increased by 2.75% [1] - The petrochemical sector also saw a rebound, with the Harvest Fund S&P Oil and Gas ETF rising by 1.95% [1] Photovoltaic Sector - The photovoltaic sector experienced a significant downturn, with the Kexin New Energy ETF, Photovoltaic ETF Index Fund, and Kexin Board New Energy ETF dropping by 5.91%, 5.82%, and 5.68% respectively [2] - The power grid sector followed suit, with the power grid equipment ETF declining by 3.11% and the power grid ETF down by 2.87% [2]

Core Viewpoint - The A-share market shows mixed performance with the Shanghai Composite Index slightly up by 0.05%, while the Shenzhen Component Index decreased by 0.15% and the ChiNext Index increased by 0.17% [1] Market Analysis - Three major positive factors are contributing to the relative strength of the A-share market: 1. The China Warehousing Index for October 2025 is at 50.6%, up by 1 percentage point from the previous month, indicating stable economic vitality [2] 2. The People's Bank of China announced continued release of mid-term market liquidity as of November 4 [2] 3. Active hot concept sectors, particularly the Hainan and Fujian sectors, are attracting market interest [2] Sector Performance - **Tourism and Hotel Sector**: - The sector is performing well with stocks like Caesar Travel hitting the daily limit, and others such as Tianfu Cultural Tourism and Yunnan Tourism also rising. The upcoming 2026 Spring Festival holiday, lasting nine days, has led to a 63% increase in flight bookings compared to the same period last year [6] - **Coal Mining and Processing Sector**: - This sector is notably active, with stocks like Antai Group hitting the daily limit. The demand is driven by unexpected cold weather in the north and increasing consumption in the south, leading to a significant need for inventory replenishment [4] - **Electric Grid and Energy Storage Sector**: - Stocks in this sector are rising, with companies like Shenneng Power and Jinpan Technology seeing substantial gains. The U.S. energy storage market is projected to grow significantly, with an expected installation of 76 GWh by 2026, marking a nearly 44% year-on-year increase [5] Institutional Perspectives - **Everbright Securities**: - The market's recent pullback aligns with historical patterns, suggesting a potential wide-ranging fluctuation phase in the short term [7][8] - **Oriental Fortune**: - The Shanghai Composite Index is fluctuating around the 4000-point mark, with a focus on sectors like artificial intelligence and biotechnology as the market transitions into a phase of risk preference enhancement [9] - **Zheshang Securities**: - The ChiNext Index is currently in a weak fluctuation pattern, with a focus on sectors like steel and consumption that are at relatively low levels [10]

Group 1 - Recent surge in international copper prices driven by supply-demand imbalance and loose financial environment, with supply disruptions like the suspension of Indonesia's Grasberg copper mine being a direct trigger [2] - Long-term demand growth from sectors such as renewable energy, AI computing, and power grids provides ongoing support for copper prices [2] Group 2 - Upstream mining resource leaders directly benefit from rising copper prices due to high resource self-sufficiency and significant earnings elasticity [3] - Midstream processing and high-end material companies focus on deep processing of copper, producing high-value-added products, benefiting from rapid development in downstream sectors like renewable energy and electronics [4] - Companies embedded in the copper industry chain through services like mining development and engineering construction can release earnings elasticity despite not owning copper mines [5] Group 3 - Notable companies include: - Northern Copper Industry, the largest cathode copper supplier in North China, with a low production cost of 32,000 yuan per ton [5][6] - Tongling Nonferrous Metals, the world's largest copper foil producer, with a projected production capacity of 120,000 tons by 2024 and secured orders for high-frequency copper foil until 2026 [6] - Hailiang Co., holding a 35% market share in the global refrigeration copper tube market and successfully entering the electric vehicle thermal management sector [6]

Investment Rating - The investment rating for the AIDC power equipment and grid industry is "Outperform the Market" (maintained) [1] Core Viewpoints - The AIDC power equipment sector has seen a general increase in the past two weeks, with the top three performers being Uninterruptible Power Supply (UPS) (+21.0%), High Voltage Direct Current (HVDC) (+20.7%), and Battery Backup Unit (BBU) (+15.9%) [4] - The industry perspective indicates that global giants like Vertiv, Eaton, and Schneider have established strong product lines and solution capabilities in the data center power equipment sector, while domestic companies are gaining competitive advantages in various segments [4] - The year 2025 is anticipated to be a pivotal year for global AIDC construction, with significant capital expenditures expected from major cloud providers [4] - The report suggests focusing on technological innovations in data center power distribution, particularly the adoption of 800V HVDC and solid-state transformers [4] Summary by Sections AIDC Power Equipment - The demand for AIDC power equipment is projected to grow significantly, with an expected annual average growth rate of 20% from 2025 to 2030 [12] - The estimated market space for various AIDC power equipment by 2030 includes: transformers (85 billion), medium and low voltage switchgear (341 billion), UPS (41 billion), HVDC (380 billion), and solid-state transformers (239 billion) [12] - The report highlights the importance of focusing on four key areas: transformer/switchgear, UPS/HVDC, active power filters (APF), and server power supply [4] Grid Industry - The national power engineering investment completion amount for July 2025 was 65.3 billion, a year-on-year decrease of 8.9%, while the cumulative investment from January to July was 428.8 billion, an increase of 3.1% [31] - The national grid engineering investment completion amount for July 2025 was 40.4 billion, a year-on-year decrease of 0.7%, with a cumulative investment of 331.5 billion from January to July, reflecting a 12.5% year-on-year increase [32] - The report indicates that the bidding for ultra-high voltage projects is expected to see a concentrated release in the second half of 2025, with related companies maintaining strong performance certainty and scarcity [4] - The report recommends focusing on three main areas in the grid sector: ultra-high voltage orders and deliveries, virtual power plants, and the international expansion of power equipment [4]

Core Insights - The industrial control and power equipment industry is expected to show high prosperity in the first half of 2025, with total revenue reaching 458.8 billion yuan, a year-on-year increase of 10%, and a net profit attributable to shareholders of 34.4 billion yuan, a year-on-year increase of 23% [1][2] Industry Data - In Q2 2025, the industry achieved a revenue of 254.1 billion yuan, a year-on-year increase of 10%, and a net profit of 20.4 billion yuan, a year-on-year increase of 30% [2] - The overall gross margin for the industrial control and power equipment industry remained stable at 21.8% in Q2 2025, unchanged year-on-year [2] - Contract liabilities and inventory increased by 6% and 15% respectively compared to the beginning of the year [2] - Operating cash flow showed a net inflow of 23.3 billion yuan in Q2 2025, an increase of 6.6 billion yuan year-on-year [2] Industrial Control Sector - The demand in the industrial control sector further recovered in Q2 2025, with leading companies like Huichuan showing strong performance, while second-tier companies also achieved steady growth [3] - The industrial control sector recorded a revenue of 63.2 billion yuan in the first half of 2025, a year-on-year increase of 21%, and a net profit of 5.81 billion yuan, a year-on-year increase of 25% [3] - The gross margin for the industrial control sector in Q2 2025 was 27.3%, a decrease of 1.3 percentage points year-on-year [3] - Operating cash flow for the sector was a net inflow of 5.44 billion yuan in Q2 2025, an increase of 1.84 billion yuan year-on-year [3] Specific Sectors - The wire and cable sector showed significant revenue and profit growth, with revenue in Q2 2025 increasing by 11.68% year-on-year and net profit increasing by 140.43% [4] - The low-voltage sector also saw revenue growth of 13.06% year-on-year, with net profit increasing by 51.16% [4] - The high-voltage sector experienced rapid profit recovery, with revenue increasing by 5.33% year-on-year and net profit increasing by 37.30% [4] - The smart meter sector's revenue grew by 7.34% year-on-year, with net profit increasing by 7.63% [4] - The medium-voltage sector's revenue increased by 15.53% year-on-year, but net profit decreased by 1.93% [4] Secondary Equipment Sector - The secondary equipment sector maintained steady growth, achieving revenue of 30 billion yuan in Q2 2025, a year-on-year increase of 17.6%, and a net profit of 3.64 billion yuan, a year-on-year increase of 9% [5] - The gross margin for the secondary equipment sector was 28.0% in Q2 2025, a decrease of 1.5 percentage points year-on-year [5] - Operating cash flow for the secondary equipment sector showed a net inflow of 5.46 billion yuan, a significant increase of 400% year-on-year [5] Investment Recommendations - Recommended companies in the humanoid robot and industrial control sectors include Sanhua Intelligent Control, Huichuan Technology, and others [6][7] - In the AIDC sector, recommended companies include Megmeet, Hewei Electric, and others [7] - For the power grid sector, recommended companies include Siyi Electric, Sanxing Medical, and others [7]

Core Viewpoint - The semiconductor industry in A-shares is experiencing a downturn due to the cyclical nature of the sector and slow recovery in consumer electronics demand, leading to widespread declines in net profits among listed companies. However, some leading firms have shown signs of recovery in the second quarter, driven by sectors like artificial intelligence, automotive electronics, and power grids. Group 1: Semiconductor Design Companies - Chip design companies are accelerating inventory reduction, with many reporting a decline in performance in the first half of the year, but some have stabilized and shown growth in the second quarter [2][3] - Rockchip, a leader in AIoT chips, expects revenue of approximately 858 million yuan, a year-on-year decrease of about 31%, but a sequential growth of around 60% in the second quarter [2] - GigaDevice, a leader in Nor Flash memory, anticipates a net profit of about 340 million yuan, down over 70% year-on-year, but with a nearly 30% increase from the first quarter [2] Group 2: Fingerprint Recognition and Wireless Chip Companies - Goodix, a leader in fingerprint recognition chips, expects revenue of about 2.02 billion yuan, a year-on-year increase of approximately 10.5%, but a net loss of about 137 million yuan [3] - Broadcom Integrated anticipates a net loss of between 64.8 million and 43.3 million yuan for the first half of 2023, with some improvement in the second quarter [3] - Zhaoxin Microelectronics, heavily reliant on the mobile market, expects a revenue decline of 25.48% year-on-year, with a net profit decrease of 50.01% to 55.06% [3] Group 3: Packaging and Testing Companies - Packaging and testing companies are showing significant sequential growth, with Tongfu Microelectronics reporting revenue of approximately 9.909 billion yuan, a year-on-year increase of 3.58%, but a net loss of 17 to 19.8 million yuan [7] - Longji Technology, a leading packaging and testing company, expects a net profit of 446 to 546 million yuan, a year-on-year decrease of 64.65% to 71.08%, but a significant increase in the second quarter [8] - Crystal Technology anticipates a net profit of 70 to 80 million yuan, a year-on-year decline of 58.11% to 63.35%, but expects to double its profit in the second quarter compared to the first [9] Group 4: Equipment Companies - Despite the overall semiconductor sector being in a downturn, equipment companies are experiencing rapid growth, with North Huachuang reporting revenue of 7.82 to 8.95 billion yuan, a year-on-year increase of 43.65% to 64.41% [10] - Zhongwei Company, a leader in etching equipment, expects revenue of approximately 2.527 billion yuan, a year-on-year increase of about 28.13%, with a net profit increase of 109.49% to 120.18% [11] - Wan Ye Enterprises is increasing its focus on integrated circuits, expecting a net profit of about 118 million yuan, a year-on-year increase of approximately 316% [12]