9 January 2026 | 1:32AM HKT Equity Research China Semis Tour: SmartSens (688213.SS) COO visit: Automotive CIS in expansion; Smartphone CIS driven by spec upgrade We hosted SmartSens (688213.SS, Not Covered) COO in our China Semis Tour in Shanghai on Jan 7. SmartSens is a local CIS supplier that focuses on the automotive, smartphones, surveillance, and robotics markets. Management is positive on smartphones CIS spec upgrade, driven by brand clients' emphasis on AI imaging capabilities and highlights SmartSen ...

人工智能已成为各地"十五五"规划发展的"必争之地"，布局逻辑与发力方向各有侧重。 来源：环球网 【环球网财经综合报道】日前，已有超十五地陆续发布"十五五"规划建议，围绕人工智能等前沿产业领 域各展所长。 具体来看，山东全力创建国家区域科技创新中心和产业科技创新高地提出，浙江提出人工智能创新发展 高地全球竞争力影响力更加凸显，四川提出在人工智能等领域取得新突破，湖南聚焦"AI+先进制 造""AI+种业"等赛道。 具体到人工智能领域，交银国际认为，本轮生成式人工智能所带来的技术进步浪潮范围大，影响深远且 牵涉产业链环节众多，AI基础设施建设至少在2026年或继续强劲增长。 交银国际在近日发布的研究报告中表示，看好国产化在关键产业链的投资机会，并认为"十五五"期间的 政策支持或使国产化进程加速，包括晶圆代工、存储器、半导体设备等，都在"十五五"国产化加速创新 的大背景下受益。 ...

Chinese rivals are backed by investors and state lenders that have been willing to accept years of losses, allowing them to focus on growth over profitability. That is a degree of localisation VW and others may find hard to pull off https://t.co/1RLMxwSgSR ...

When it comes to operating those factories. Strategic localization is key here, right. What's driving those moves and those decisions that you're making right now.Well, it is very interesting, right, Because as you see changes in regulation like the tariffs in the United States, you have to quickly react to try to minimize the impact and be more competitive. But we were already on a roll when it comes to announcing big investments in the United States. So we have announced 26 billion dollars in the next fou ...

Summary of the Expert Call on China's Automation Market Industry Overview - **Industry**: Automation in China - **Date of Call**: November 17, 2025 - **Expert**: Mr. Wang Baomin, Senior Partner at MIR (Marketing Intelligence Resource) Key Points Market Outlook - The automation market in China is expected to be stable in 2026, with a forecasted sales decline of -0.3% year-on-year (y-y) in 2025, reaching Rmb285 billion, followed by another -0.3% y-y in 2026 and a growth of +2.0% y-y in 2027 [3][9] - The OEM market is projected to outperform the project market, with growth of +1% y-y in 2026 compared to a decline of -1% y-y for the project market [3] Demand by Downstream Industries - Anticipated strong demand for automation from sectors such as: - New energy - Electronics (smartphones, optical modules, PCB, etc.) - Logistics - Robotics - Precision machinery (liquid cooling parts, humanoid screws, etc.) - Non-ferrous metal mining - Stable demand expected from packaging and plastics, while construction-related industries (building materials, elevators) are expected to remain sluggish [4][9] Price Outlook - With channel inventory normalizing, stable prices are expected in 2026 with reduced downside risk [5][9] Growth Projections for Specific Products - **PLC (Programmable Logic Controllers)**: - Small PLCs: +7.0% y-y in 2025 and +5.8% y-y in 2026 - Midsized/large PLCs: +6.3% y-y in 2025 and +5.2% y-y in 2026 - **Servos**: +7.4% y-y in 2025 and +8.0% y-y in 2026 - **Low-voltage AC drives**: +1.3% y-y in 2025 and +3.0% y-y in 2026 - **Industrial robots**: +11.9% y-y in 2025 and +12.8% y-y in 2026 - **CNC (Computer Numerical Control)**: +3.1% y-y in 2025 and +2.1% y-y in 2026 [11] Competitive Landscape - Domestic brands are gaining market share against foreign competitors, particularly in high-value segments [9][11] - Companies like Inovance, Geekplus, and Han's Laser are preferred within the automation segment [9] Strategic Opportunities - Two key opportunities identified: - Technology security - Energy security - Positive outlook for AI-driven downstream markets [11] Risks - **Upside Risks**: - Stronger-than-expected macroeconomic conditions boosting demand for automation products - Increased sales of ePVs equipped with Inovance's EV control system - Improved profitability in China's manufacturing sector leading to higher capital spending [15][16] - **Downside Risks**: - Failure to develop high-end automation products - Significant gross margin decline due to raw material price hikes - Intensifying competition and potential loss of key clients [19][16] Conclusion The expert call highlighted a stable outlook for China's automation market in 2026, with specific growth opportunities in various sectors and products. However, the market faces challenges from competition and potential economic fluctuations.

Localization, but make it maritime. 🏴‍☠️Now available in ye settings: Pirate English. https://t.co/iCEdS9LnoY ...

Summary of 3Q25 Results Wrap and Inventory Tracker for China Hardware and Semiconductors Industry Overview - **Industry**: China Hardware and Semiconductors - **Quarter**: 3Q25 Key Points 1. Performance of Tech Hardware and Semiconductors - 21% of companies reported better-than-expected results in 2Q25, down from 35% in the previous quarter, primarily from non-operational sources, Apple casing suppliers, and OSAT [1][2] - Among 29 tech hardware and semiconductor stocks, 6 beat expectations, 4 were in-line, and 19 missed in 3Q25 [2] 2. Inventory Levels - The China tech inventory tracker indicates healthy inventory levels for consumer electronics hardware in 3Q25, while AI hardware remains high due to strategic stocking [1][3] - DIO (Days Inventory Outstanding) for passive components and distributors was low, while DIO for TV, optical communications, and networking reached a 5-year high [3] 3. Apple and Android Supply Chains - The Apple supply chain is expected to experience profit-taking following an upward revision in iPhone build plans, with a projected 95 million iPhone 17 builds in 2H25 [7] - Android supply chains are under pressure due to anticipated profit squeezes from rising memory prices [2][8] 4. AI Hardware Growth - AI supply chains are expected to show high growth visibility in 2026, with upstream material lock-in, capacity expansion, and margin delivery as key themes [1][2][9] - The AI sector may face a slowdown from November to February due to a lack of catalysts, but long-term growth remains promising [9] 5. Localization Trends - Strong localization demand is noted among Chinese mature semiconductors, driven by uncertainties in supply from US vendors [2][11] - The "China-for-China" trend is gaining traction, with international semiconductor vendors increasingly partnering with local firms [11] 6. Company-Specific Insights - **Lens Tech**: Expected to benefit from iPhone cover glass upgrades and AI edge devices, with a target price of Rmb38 [10] - **Victory Giant (VGT)**: Anticipated to see robust growth due to AI-related PCB demand, with a target price of Rmb407 [10] - **Sunny Optical**: Likely to benefit from multiple growth engines in 2026, including automotive and AI smart glasses, with a target price of HK$103 [10] 7. Semiconductor Market Dynamics - Chinese semiconductor makers are experiencing rising inventory levels due to softer consumer demand and seasonal stocking [11] - The automotive sector showed signs of stabilization in 4Q25, ahead of new EV purchase tax incentives starting January 2026 [11] 8. Revenue and Growth Projections - Global smartphone shipments grew by 2.6% YoY in 3Q25, while TV shipments declined by 4.9% YoY [6][8] - Revenue growth for smartphone components suppliers was reported at 9% YoY, with net profits increasing by 35% YoY [6] 9. Challenges and Risks - Concerns over memory price hikes are expected to pressure profit margins for smartphone manufacturers [8] - The semiconductor industry faces oversupply issues, particularly in power discrete components, which may hinder recovery [2][11] 10. Analyst Recommendations - Analysts have downgraded certain stocks, such as Sanan, to Sell due to lack of recovery signs, while maintaining Buy ratings on companies like ASMPT and Chroma due to their strong market positions and growth potential [2][11] This summary encapsulates the key insights and trends from the 3Q25 results wrap and inventory tracker for the China hardware and semiconductor industry, highlighting performance metrics, inventory levels, supply chain dynamics, and company-specific forecasts.

Financial Data and Key Metrics Changes - Net sales increased by 5.4% to $1.17 billion, with comparable store sales up by 1.2% [4][24] - Adjusted EBITDA was $67 million, exceeding guidance due to favorable tax impacts [5][27] - Gross profit rose by 3% to $355.1 million, with a gross margin of 30.4%, down 70 basis points year-over-year [25][26] - Net income decreased to $11.6 million, or $0.12 per diluted share, compared to $24.2 million, or $0.24 last year [27] Business Line Data and Key Metrics Changes - The company opened 13 new stores and closed 2, ending the quarter with 563 stores across 16 states [24] - Comparable store sales growth was driven by a 1.8% increase in transactions, partially offset by a 60 basis points decrease in average transaction size [25] Market Data and Key Metrics Changes - The company expects same-store sales growth for Q4 to be between flat and up 1% due to recent promotional adjustments [5][29] - The percentage of sales from electronic benefits transfer payments, largely related to SNAP benefits, was approximately 9% last year [29] Company Strategy and Development Direction - The company is focusing on four strategic imperatives: improving new store performance, securing top talent, addressing execution gaps, and enhancing execution at scale [6][19] - A store refresh program is being rolled out to improve customer experience and drive comparable sales growth, with plans to complete approximately 150 stores by the end of 2026 [12][18] Management's Comments on Operating Environment and Future Outlook - Management expressed dissatisfaction with current comparable performance but noted significant progress in strategic initiatives that should lead to stronger performance in 2026 [22][32] - The company is adjusting its guidance for the year, anticipating a range of 0.6%-0.9% for comparable store sales growth [29] Other Important Information - The company is investing in technology to enhance inventory visibility and improve operational efficiency for independent operators [8][9] - New leadership hires in operations and supply chain are expected to strengthen the company's execution capabilities [20][21] Q&A Session Summary Question: What was the split of transaction versus average ticket for Q3? - Management noted that transactions were running just under 2% while basket sizes were down slightly, leading to a 1.2% comp growth [33] Question: Can you provide more detail on the promotional activity and marketing mix? - Management indicated that adjustments in promotions and marketing led to a correlation with comp performance, with a return to positive comps after course corrections [34][36] Question: What is the expected comp growth needed to leverage SG&A? - The company indicated that around 2.5% comp growth is needed to achieve SG&A leverage [56] Question: How is the refresh program performing in different markets? - Management reported positive results from the refresh program across various markets, with significant improvements in basket size and customer experience [57] Question: What impact do you expect from SNAP benefits changes? - Management stated that while SNAP accounts for about 9% of sales, historical data showed no significant impact on sales during previous reductions in benefits [44]

Core Insights - The era of easy globalization is fading, giving way to protectionism and neo-mercantilism, where nations prioritize trade advantages over efficiency [3][4] - Despite geopolitical tensions, global companies are thriving by adapting their strategies to local markets while maintaining a global perspective [4][9] Industry Trends - Major multinationals, including Volvo, are shifting towards localization as a strategy for growth, emphasizing the importance of understanding local markets [5][12] - The automotive industry is witnessing a trend of reshoring, with companies like Hyundai, Toyota, and BMW expanding U.S. facilities to better cater to local preferences [12][19] Company Strategies - Volvo's new plant in Charleston, South Carolina, exemplifies the shift towards localization, allowing for production tailored to North American consumer preferences [6][11] - The company's approach focuses on rethinking the value chain to enhance customer connection and reduce logistics costs, reflecting a broader industry trend [10][11] Brand Adaptation - Successful brands are those that adapt their offerings to local cultures, as seen with KitKat's region-specific flavors, highlighting the need for brands to resonate locally [8][13] - Volvo's brand identity varies by region, emphasizing safety in the U.S. and reliability in Scandinavia, showcasing the importance of local relevance [9][14] Future Outlook - The future of globalization is expected to be more fragmented, with companies needing to build resilience through local engagement and adaptability [16][17] - Companies that prioritize empathy and local understanding over mere efficiency are likely to lead in the next era of global business [20]

Summary of China Industrials Update Industry Overview - **China Industrials** is currently experiencing an upcycle driven by industrial upgrade and replacement cycles [6][6][6] - Key long-term drivers identified include: - AI technology diffusion into intelligent manufacturing and equipment - Advanced equipment localization - Global expansion [6][6][6] - The robotics sector is entering a new booming era, with significant growth anticipated [6][6][6] Subsector Insights - **Automation, Robotics, and AIDC Equipment**: - Rated as Overweight (OW) with key stocks including Inovance, Geekplus, Han's Laser, Shuanghuan, Hongfa, and Neway Valve [6][6][6] - **Construction Machinery**: - Rated as Overweight (OW) with key stocks including Sany, Hengli Hydraulic, and Zoomlion [6][6][6] - **Lithium Battery Equipment**: - Rated as Overweight (OW) with key stocks including Wuxi Lead and Hangke [6][6][6] - **Heavy Duty Trucks and Railway Equipment**: - Rated as Equal Weight (EW) with key stocks including Weichai, Sinotruck, and CRRC [6][6][6] - **Solar Equipment and Infrastructure E&C**: - Rated as Underweight (UW) with key stocks including SC New Energy and CSCEC [6][6][6] Market Performance - The automation market showed a mild recovery with a 1% year-on-year increase in sales for 1H25, indicating a less intense competitive environment compared to the previous year [28][28][28] - Anticipated recovery in 2026-27 driven by: - Replacement demand from equipment sold during the 2020-21 capex upcycle - New capex demand from AI applications - Continued benefits from overseas capacity expansion [28][28][28] Financial Metrics - **Return on Equity (ROE)**: Mixed trends observed across subsectors, with growth in ROE for lithium battery equipment, automation, and construction machinery, while solar equipment and E&C show eroding ROE [20][20][20] - **Sector P/E Multiples**: Most subsector valuations are above the five-year median, particularly in automation, solar equipment, and lithium battery equipment [13][13][13] Robotics Market Insights - The Chinese robotics market is expected to double by 2028, with significant growth in drones, mobile robots, and collaborative robots (cobots) [62][62][62] - Localization in robotics is increasing, with domestic players gaining market share [76][76][76] - The market for robot components is projected to reach a total addressable market (TAM) of US$40 billion by 2024, with a 23% CAGR anticipated from 2025 to 2028 [86][86][86] Conclusion - The China Industrials sector is poised for growth, driven by technological advancements and increasing localization. Key subsectors such as automation and robotics are expected to lead this growth, with significant investment opportunities identified in specific companies. The overall market dynamics suggest a favorable environment for both established players and new entrants in the industrial landscape [6][6][6][62][62][62]