2 September 2025 | 3:43PM HKT We reiterate Buy on Ruijie Networks as we see (1) rising China Cloud capex (GSe BABA Capex in FY2026-28E lifted post 1QFY26 result) to drive switch demand, (2) positive 2H25 outlook with strong visibility into data center switch growth, (3) migration to 400G/800G switches for data center high-speed transmission, and (4) accumulated experience in offering customized white-box solutions for major China CSP clients. We are positive on Ruijie as a local switch leader to ride on the ...

Investment Ratings - The report initiates coverage on Huaqin and Lingyi with a Buy rating, and Inspur is rated Neutral [1][54]. Core Insights - The China AI servers supply chain is expected to be driven by increasing demand from the domestic market, with China Cloud capital expenditures projected to grow at 26% year-over-year in 2025 and maintain a similar high level in 2026 [1][27]. - Huaqin's net income is anticipated to grow at a CAGR of 22% from 2025 to 2027, while Inspur and Lingyi are expected to see net income growth of 17% and 31% CAGR, respectively, during the same period [2][54]. - The report highlights the competitive landscape, noting that Huaqin's strengths include extensive experience in smartphone ODM, strong R&D capabilities, and a highly automated production process [27][51]. Summary by Sections Huaqin - Huaqin is positioned as an ODM company with a diverse product range, including smartphones, PCs, and AI servers. The company is expected to benefit from increased Capex spending on AI servers and market share gains in legacy businesses [23][51]. - The 12-month price target for Huaqin is set at Rmb79.8, reflecting a target P/E multiple of 20x based on 2025E EPS estimates [26][52]. - Revenue is projected to grow significantly, with contributions from servers and wearables expected to rise to 29% and 7% by 2028, respectively [23][40]. Inspur - Inspur is recognized as a leading supplier of AI servers, with a focus on serving Chinese clients. The company is expected to experience net income growth at a CAGR of 17% from 2025 to 2027 [54]. - The 12-month price target for Inspur is set at Rmb53, with a current trading P/E of 21x for 2025 [54]. - Inspur's strong R&D capabilities and experience in the server market are highlighted as key advantages in capitalizing on the growing demand for AI servers [54]. Lingyi - Lingyi is expected to benefit from the rising demand for AI devices and changes in smartphone form factors, with a projected net income growth of 31% CAGR from 2025 to 2027 [2][54]. - The report initiates coverage on Lingyi with a Buy rating and a price target of Rmb9.4, indicating a 30% upside [1][54]. Market Dynamics - The report discusses the competitive dynamics within the AI server supply chain, emphasizing the importance of local foundation models and the potential for market share gains as local peers exit the market [27][51]. - The valuation of Huaqin, Inspur, and Lingyi is compared to the Taiwan AI servers supply chain, with Huaqin and Lingyi trading at higher multiples due to their growth prospects [3][19].