ab 14 November 2025 Global Research Our latest 2026-27 China macro outlook In our baseline, we expect China's GDP growth to slow modestly to 4.5% in 2026. We expect exports to decelerate in 2026, leading to a much narrower growth contribution from net exports. Overall domestic activities are likely to stay largely resilient, with the property downturn likely to continue albeit with smaller contractions; consumption to maintain a modest, but softer pace; and infrastructure and manufacturing investment to rec ...

Summary of Conference Call Notes Industry and Companies Involved - **Industry**: Solar Equipment - **Companies**: Shenzhen SC (300724.SZ) and Suzhou Maxwell (300751.SZ) Key Points and Arguments Shenzhen SC (SZSC) - **3Q25 Performance**: Reported better-than-expected results due to a faster booking pace and increased contributions from non-solar and overseas businesses, which have higher margins [1][2] - **Order Backlog**: There is a concerning trend of declining order backlog due to limited new order additions, with inventory down by 29% and contract liabilities down by 33% quarter-over-quarter [1] - **Financial Estimates**: Revenue estimates for 2025E-2026E revised by +27%/-16%, while EBITDA estimates raised by 43%/3% for the same period [2] - **Target Price (TP)**: Slight increase in TP to Rmb51.8 from Rmb51.5, maintaining a Sell rating [2] Suzhou Maxwell - **3Q25 Performance**: Also reported improved results, with a significant revision of EBITDA estimates up by 51% for 2025E due to higher margins in non-solar business [3] - **Financial Estimates**: Estimates for 2026E-2030E remain largely unchanged, reflecting a stable long-term solar capex outlook [3] - **Target Price (TP)**: Increased TP to Rmb63 from Rmb62, retaining a Sell rating [3] Financial Comparisons - **Shenzhen SC Financials**: - Revenue: Rmb4,273 million in 3Q25, down 17% year-over-year - Gross Profit Margin: 32% in 2025, up 5 percentage points year-over-year - Net Profit Margin: 26% in 2025, up 4 percentage points year-over-year [4] - **Maxwell Financials**: - Revenue: Rmb1,991 million in 3Q25, down 31% year-over-year - Gross Profit Margin: 40% in 2025, up 10 percentage points year-over-year - Net Profit Margin: 14% in 2025, up 3 percentage points year-over-year [7] Investment Thesis - **Shenzhen SC**: The company is the largest TOPCon equipment manufacturer with over 50% global market share. However, the outlook is cautious due to an overly optimistic market regarding near-term orders and ongoing anti-involution campaigns in China [11] - **Suzhou Maxwell**: The largest screen printing equipment maker globally with over 80% market share. Despite positive long-term prospects for HJT technology, the company is expected to face challenges from a solar capex downcycle [9] Risks - **Common Risks for Both Companies**: - Faster-than-expected developments in overseas, semiconductor, and battery industries could impact performance [10][13] - Potential rapid migration to new solar technologies could disrupt existing business models [10][13] Other Important Information - **Market Sentiment**: Both companies are rated as Sell, indicating a cautious outlook despite some positive short-term performance metrics [2][3][11]

Core Insights - Chinese listed companies experienced their fastest profit growth of the year in Q3, driven by government initiatives to reduce excess industrial output and increased demand for semiconductors due to tech self-reliance [1][2] Earnings Growth - Earnings of mainland China-listed companies rose by 11.6% year-on-year in Q3, a significant increase compared to 1.2% in Q2 and 3.2% in Q1 [2] - Technology companies were the primary contributors to this surge, with commodity producers and financial firms also showing notable improvements in earnings [2] Market Impact - The positive quarterly results are expected to support the ongoing rally in Chinese stocks, which has been fueled by a shift from bank savings to risk assets and expectations of increased government efforts to combat deflation [3] - A recovery in earnings growth is deemed critical for sustaining the stock market rally, especially as valuations have risen amid increased investor risk appetite [3] Future Outlook - Analysts predict continued support for corporate earnings from tech self-reliance, initiatives to reduce excess output, and easing tensions between China and the US [5] - The technology, media, and telecom (TMT) sectors, along with resource sectors, are expected to maintain strong earnings growth, while the non-financial sector may benefit from a low base in Q4 [5] Sector Performance - Tech companies showed remarkable performance, with profits on the tech-heavy Star Market increasing by 63.4% year-on-year, and those on the ChiNext board growing by 34.9% [6] - Companies on the main boards of the Shanghai and Shenzhen exchanges reported a profit growth of 10.4% [6] Notable Company Performance - Cambricon Technologies, an AI chipmaker, reported a 14-fold increase in revenue and turned a profit in Q3, leading to a more than doubling of its stock price this year on the Star Market [7]

Research Analysts Asia Economics Economics - Asia ex-Japan China: Supportive measures after the 4th Plenum Despite the 4.8% growth in Q3, Beijing will have to face that reality growth headwinds have been building up and will almost surely strengthen in Q4. The government has already made some efforts on the fiscal front to support demand over the past couple of months. However, these efforts have not been enough due to seemingly resilient growth so far, the priority placed on drafting the 15th Five-year pla ...

Core Viewpoint - China Resources Building Materials Technology Holdings reported a significant decline in revenue and net profit for 3Q25, largely in line with expectations, indicating ongoing challenges in the cement market due to weak demand and rising supply-demand imbalances [1][2]. Group 1: Financial Performance - Revenue fell 11% YoY to Rmb4.86 billion, while attributable net profit dropped 83% YoY to Rmb24.32 million [1]. - The firm's total sales volume of cement and clinker decreased 5.3% YoY to 14.12 million tonnes, which was a milder decline compared to the industry's 6.6% drop [1]. - The per-tonne average selling price (ASP) of cement and clinker decreased Rmb32 YoY to Rmb205, while the per-tonne cost also fell Rmb32 YoY to Rmb173, resulting in a stable per-tonne gross profit of Rmb32 [1]. Group 2: Business Segments - Sales volume for concrete and aggregate businesses increased significantly, with concrete sales rising 11% and aggregate sales up 32% YoY in 3Q25 [2]. - The unit gross profit for the concrete business increased Rmb7 YoY to Rmb46 per cubic meter, while the per-tonne gross profit for aggregates fell Rmb5 YoY to Rmb8.3 [2]. Group 3: Expense and Cost Management - The expense ratio for cement and clinker rose, with expenses per tonne increasing Rmb3 YoY to Rmb50 [3]. - Selling, general and administrative (G&A), and financial expense ratios changed by +0.2 percentage points, +1.9 percentage points, and -0.5 percentage points YoY, respectively [3]. Group 4: Industry Outlook - The cement industry is preparing for potential price hikes in November-December, with expectations that the "anti-involution" campaign may support earnings recovery [3]. - The utilization rate of clinker capacity is projected to rise to about 60% by 2026 if overproduction restrictions are strictly implemented [3]. - Management is focusing on strengthening profit margins and prioritizing pricing strategies, indicating potential upside for profit per tonne in southern China [3]. Group 5: Valuation and Forecast - EPS forecasts for 2025 and 2026 have been cut by 66% and 48% to Rmb0.06 and Rmb0.11, respectively, due to fixed asset impairments and lower-than-expected sales volume and prices [4]. - The stock is currently trading at 28x 2025 estimated P/E and 14x 2026 estimated P/E, with a target price cut by 12% to HK$2.2, implying a 34x 2025 estimated P/E and 17x 2026 estimated P/E with a 24% upside [4].

Summary of Key Points from the Conference Call Industry Overview - **Industry**: Chinese Economy - **Key Focus**: Q3 GDP growth and its implications Core Insights and Arguments 1. **GDP Growth**: China's Q3 real GDP growth slowed to 4.8% year-on-year from 5.2% in Q2 and 5.4% in Q1, slightly above market consensus of 4.7% and internal forecast of 4.5% [1][2] 2. **Nominal GDP Decline**: Nominal GDP growth dropped to 3.7% year-on-year in Q3 from 3.9% in Q2 and 4.6% in Q1, primarily due to deflation [1] 3. **Sector Performance**: - Financial services and exports were key growth drivers, with export growth rising to 6.6% in Q3 from 6.1% in Q2 [2] - Financial services sector's contribution to GDP increased to 8.9% in Q3 from 6.7% in Q2 [2] 4. **Weakness in Retail and Investment**: - Retail sales growth fell to 3.0% year-on-year in September from 3.4% in August, with expectations of further decline below 3.0% in Q4 [3][15] - Fixed Asset Investment (FAI) growth worsened to -6.8% year-on-year in September from -6.3% in August, marking the lowest pace since early 2020 [11] 5. **Property Sector Decline**: - Property investment growth plunged to -21.2% year-on-year in September from -19.4% in August, with new home sales volume dropping to -10.5% [19][20] - The decline in home prices deepened, with average new home prices falling by 0.41% month-on-month in September [21] Additional Important Insights 1. **Industrial Production**: - Industrial production growth accelerated to 6.5% year-on-year in September from 5.2% in August, exceeding market expectations [5] - Manufacturing output growth increased to 7.3% year-on-year, while utility sector growth slowed to 0.6% [6] 2. **Investment Trends**: - FAI in infrastructure and manufacturing sectors saw significant declines, with infrastructure investment growth at -8.0% year-on-year in September [14] - Manufacturing investment also declined further to -1.9% year-on-year [12] 3. **Policy Implications**: - Post-4th Plenary Session, expectations are for Beijing to focus on short-term growth challenges, with potential stimulus measures anticipated towards year-end [4] - The People's Bank of China (PBoC) is expected to consider a 10 basis point rate cut by year-end [4] Conclusion - The Chinese economy is showing signs of resilience in certain sectors, particularly financial services and exports, but faces significant challenges in retail, fixed asset investment, and the property market. The government is likely to implement measures to address these challenges while maintaining a cautious approach to monetary policy.

Market Overview - Asian stocks experienced a significant surge due to easing geopolitical tensions between the United States and China, a weaker U.S. dollar, and renewed optimism for potential interest rate cuts by the Federal Reserve [2] - The Hang Seng and Hang Seng Tech indices ended their seven-session losing streak, rebounding strongly after previously reaching a 52-week high on October 2, with all industry sectors showing positive performance [3] Investment Activity - Mainland investors were net sellers of Hong Kong stocks via Southbound Stock Connect, particularly selling positions in the Hong Kong Tracker ETF, but were net buyers of several individual stocks [4] - JD.com saw a 2% increase following a partnership announcement with GAC Group and CATL to produce an electric vehicle priced between RMB 100,000 and RMB 120,000, despite mixed optics due to recent earnings impacts from its restaurant delivery expansion [4] IPO and Stock Performance - Cloud Walk Robotics' IPO shares surged by 75% in pre-market trading, indicating strong market interest [5] - Baidu's stock rose by 2.73%, despite analysts projecting a decline in its third-quarter core search revenue between 7% and 11% [5] Economic Indicators - Mainland China's equity markets showed strength, although the breadth lagged behind Hong Kong, with declines in the energy, shipping, and air freight sectors [6] - The Consumer Price Index (CPI) in China fell by 0.3% year-over-year in September, a slight improvement from August's 0.4% decline, while the Producer Price Index (PPI) dropped by 2.3% year-over-year, matching expectations [6] - The core CPI, excluding food and energy, rose by 1% year-over-year in September, compared to a 0.9% increase in August [7] Financing and Economic Health - New loans in Mainland China reached RMB 14.75 trillion year-to-date in September, up from RMB 13.46 trillion in August, while aggregate financing rose to RMB 30.09 trillion, exceeding consensus expectations [7] - LVMH reported a 2% sales increase in Asia ex-Japan, including China, in the third quarter, indicating a recovery among high-end consumers after previous declines [8] Geopolitical Context - Recent meetings between U.S. and Chinese officials have been highlighted, with a focus on the influence of financial markets on U.S.-China relations [9] - The U.S. Bureau of International Security and Nonproliferation's actions regarding Chinese semiconductor firms illustrate the complexities of international trade and sanctions [9][10]

Core Insights - China's leaders are committed to ending aggressive price cuts by companies, which regulators believe are leading to excessive competition and harming the economy [1][2] - The "anti-involution" campaign is a response to overcapacity in manufacturing, a result of previous government stimulus efforts, and price cuts aimed at clearing stock or boosting consumption [2][6] - There are growing concerns that ongoing price wars could lead to entrenched deflation, which would impede efforts to stabilize China's $19 trillion economy [2][8] Industry Context - The term "involution" has gained traction in China, describing the hypercompetitive environment that often results in self-defeating behaviors among individuals and companies [3][6] - The shift from property-driven growth to a more industrial complex has led to increased resource investment without corresponding returns, contributing to a "race to the bottom" in various sectors [6][7] - The current level of competition is resulting in diminishing returns, posing a threat to economic stability, prompting the government to consider interventions [7][8]

Summary of Key Points from the Conference Call Industry Overview - **Industry**: Chinese Economy and Macro Environment - **Key Focus**: Economic growth, monetary policy, property sector stabilization, and demand-side measures Core Insights and Arguments 1. **Slower Growth and Demand-Side Measures**: July economic data indicated softer growth momentum, with a month-on-month contraction in new bank lending and broad-based weakness in household and corporate lending. This may prompt faster rollout of demand-side measures to stabilize growth in H2 [2][7] 2. **Policy Support for Private Economy**: President Xi emphasized the need for measures to promote the private economy, including fair competition and settling local government arrears. Special local government bonds (SLGBs) are being used to accelerate repayments to private firms [3][7] 3. **Property Sector Intervention**: The central government may take a more active role in stabilizing the property sector, potentially asking state-owned enterprises (SOEs) to purchase unsold homes to clear excess inventories [4][8] 4. **Monetary Policy Stance**: The People's Bank of China (PBoC) maintained a moderately accommodative monetary policy, focusing on structural support for the real economy. Targeted support for SMEs and sectors like technology and green development is emphasized [9][11] 5. **Weakness in Property Data**: July property data showed significant declines, with property investment falling at the fastest pace since November 2022. The central government is expected to introduce more forceful solutions to address this weakness [8][9] 6. **Credit Support for Key Sectors**: The PBoC's report highlighted the need for targeted credit support in five major areas, which now account for approximately 70% of new loans [10][11] 7. **Preventing Capital Idleness**: The PBoC stressed the importance of preventing capital idleness in the financial system, aiming to improve efficiency rather than tightening monetary conditions [12][11] Additional Important Insights 1. **Economic Activity Indicators**: Various economic activity indicators, such as the operating rates of semi-steel tyres and cement shipping, showed mixed results, indicating a need for close monitoring of industrial performance [13][19] 2. **Container Shipping Costs**: Container shipping costs on China-Eastern US routes have declined, reflecting changes in global trade dynamics [70][11] 3. **Inflation Trends**: Crude oil and steel rebar prices have edged down, while agricultural product prices have increased seasonally, indicating varied inflationary pressures across sectors [57][65] 4. **Visitor Trends**: There has been an increase in mainland Chinese visitors to Hong Kong, suggesting a potential recovery in tourism-related sectors [76][78] This summary encapsulates the key points discussed in the conference call, focusing on the economic outlook, policy measures, and sector-specific insights that could influence investment decisions.

Summary of Key Points from the Conference Call Industry Overview - **Industry**: Chinese Economy and Macro Environment - **Key Focus**: Economic growth, monetary policy, property sector stabilization, and demand-side measures Core Insights and Arguments 1. **Slower Growth and Demand-Side Measures**: July economic data indicated a slowdown in growth momentum, with a month-on-month contraction in new bank lending and weaker investment and retail sales. This may lead to a faster rollout of demand-side measures to support growth in H2 [2][7] 2. **Policy Support for Private Economy**: President Xi emphasized the need for measures to promote the private economy, including fair competition and settling local government arrears. Special local government bonds (SLGBs) are being used to accelerate repayments to private firms [3][7] 3. **Property Sector Stabilization**: The central government may take a more active role in stabilizing the property sector, with reports suggesting that state-owned enterprises (SOEs) may be asked to purchase unsold homes to clear excess inventories [4][8] 4. **Monetary Policy Stance**: The People's Bank of China (PBoC) maintained a moderately accommodative monetary policy, focusing on structural support for the real economy. There is an expectation of further monetary easing, including interest rate cuts and liquidity support [9][11] 5. **Targeted Support for Real Economy**: The PBoC's report highlighted the need for targeted support in areas such as technology, green development, and inclusive finance, which now account for approximately 70% of new loans [10][11] 6. **Weakness in Property Data**: July property data showed significant declines, with property investment falling at the fastest pace since November 2022. This has prompted calls for solid measures to stabilize the sector [8][9] 7. **Consumer Confidence and Spending**: Structural measures aimed at improving household and corporate confidence are crucial for reviving consumer spending and corporate investment [2][3] Additional Important Insights 1. **Debt Swap Programs**: The ongoing debt swap programs are expected to help replenish cash flows for private firms, enhancing their confidence in the market [3][7] 2. **High Frequency Data**: Primary home sales in 30 large cities fell approximately 15% year-on-year in August, indicating continued weakness in the property market [8][9] 3. **Interbank Rate Trends**: Interbank rates have edged down, reflecting the PBoC's efforts to maintain liquidity in the financial system [12][11] 4. **Container Shipping Costs**: Container shipping costs on China-Eastern US routes have declined further, impacting trade dynamics [70][11] This summary encapsulates the critical points discussed in the conference call, focusing on the economic landscape, policy measures, and sector-specific insights that could influence investment decisions.