Summary of Key Points from the Conference Call Industry Overview - The report focuses on the polarization between New and Old Consumption in China, highlighting three key trends: 1. A stagnant economy limits overall growth, creating selective opportunities [1] 2. Supply-demand mismatches and corporate competency gaps challenge companies amid commoditized supply and demanding consumers [1] 3. A new generation of consumers seeks instant, experiential, and affordable "dopamine" experiences, reflecting a global trend [1] Analytical Framework - The "365" framework is reiterated, consisting of: 1. **Three macro themes**: structural imbalance of supply, demand, and intermediary channels [2] 2. **Six behavior patterns**: emotional value quest, instant gratification, focus on IP/contents, she-economy, brand demystification, and upgrade vs. downgrade [2] 3. **Five baskets**: emotional value, health & wellness, addictiveness, value for money, and new channels [2] New vs. Old Consumption - Definitions of New and Old Consumption are often ambiguous; adaptation to trends is crucial [3] - Strategies for Old Consumption include product innovation, brand rejuvenation, and channel recalibration [3] - Risks for New Consumption include scalability, lifecycle sustainability, and regulatory challenges [3] Market Dynamics - New Consumption was a significant trade in 1H25 due to macro weakness and liquidity, but recent market rotations have negatively impacted it [4] - Earnings sustainability and visibility are emphasized as key factors for investment decisions [4] Stock Picks - Preferred companies based on fundamentals and valuation include: - **New Consumption**: Pop Mart and Laopu Gold - **Old Consumption incorporating New Consumption**: Mao Geping, Eastroc, and Nongfu Spring - Mixue is rated as Underperform due to unfavorable risk-reward dynamics [5] Performance Metrics - New Consumption stocks have shown a 70% increase in share price since March 2025, while Old Consumption remains largely flat [14] - New Consumption trades at a 71% premium to Old Consumption on average since 2024 [17] Consumer Behavior Insights - The report identifies a quest for emotional value driven by stress and a fragmented society, leading to a rise in "dopamine consumption" [45] - Instant gratification and granular "dopamine" are becoming prevalent due to shorter attention spans and digital media immersion [56] - The she-economy is reshaping consumption narratives, with female consumers becoming more vocal and influential [82] Brand Dynamics - Brand demystification is occurring as traditional branding foundations are challenged, leading to a new storytelling journey for brands [94] - The rise of emotional value and community sharing is significant in the she-economy, with consumers focusing on quality-for-money rather than brand prestige [93] Conclusion - The report emphasizes the importance of understanding the evolving landscape of consumer behavior in China, particularly the distinctions between New and Old Consumption, and the implications for investment strategies in the consumer sector [1][2][3][4][5]

Summary of Key Points from the Conference Call Company and Industry - **Companies Involved**: NetEase, Bilibili, Kuaishou - **Industry**: China Digital Entertainment Core Insights and Arguments 1. **Stock Performance**: China digital entertainment stocks have seen significant YTD performance with Kuaishou, NetEase, and Bilibili rising by +75%, +57%, and +30% respectively, compared to HSI's +27% [1][11] 2. **Downgrade Ratings**: NetEase and Bilibili have been downgraded from Overweight (OW) to Neutral due to less attractive risk-reward profiles after recent stock rallies [1][11] 3. **NetEase Earnings Outlook**: Limited earnings upside for NetEase is anticipated due to rising game promotion expenses and a lack of blockbuster game launches in the second half of 2025. The estimated P/E ratio for 2025 is 16x, with a projected EPS CAGR of 6% for 2026-2027 [1][11][26] 4. **Bilibili Revenue Growth**: Bilibili's revenue growth is expected to decelerate from over 20% in the first half of 2025 to 5% in the second half, primarily due to a high comparison base from mobile games [1][11] 5. **Investment Recommendations**: The report suggests accumulating stocks with reasonable valuations (less than 20x P/E) and double-digit profit CAGR, favoring Kuaishou with a 14x P/E and 20% profit CAGR [1][11] Financial Forecasts and Changes 1. **NetEase Financials**: - Revenue forecast for 2025 is RMB 113.54 billion, with an adjusted net income of RMB 39.87 billion [22] - Expected net profit growth to slow to -1% in Q4 2025 and -9% in Q1 2026 [11][26] 2. **Bilibili Financial Revisions**: - Net revenue for 2025 revised down by 1% to RMB 30.20 billion, with mobile games revenue down by 6% [5] - Advertising revenue forecasted to decline by 3% [5] Other Important Insights 1. **Market Conditions**: The digital entertainment sector is influenced by themes such as AI and the experience economy, which are seen as safer investments compared to e-commerce and local services [1] 2. **Competition and Regulation**: Increased competition in the gaming market and potential regulatory changes in China pose risks to revenue growth for both NetEase and Bilibili [11][15] 3. **Valuation Metrics**: NetEase's valuation is at a 20% discount to its five-year average P/E, reflecting a cautious outlook on its future performance [14][17] Conclusion The conference call highlights a cautious outlook for NetEase and Bilibili amidst strong past performance, with concerns over rising costs and competition. The recommendation is to focus on companies with solid growth potential and reasonable valuations within the digital entertainment sector.

Core Viewpoint - The performance of large private equity firms in the A-share market has been outstanding in the first half of 2025, with an average return of 10.93% among the top 50 firms, and 94% of them achieving positive returns [1][3]. Group 1: Overall Performance - As of June 30, 2025, the average return for 50 large private equity firms was 10.93%, with 47 firms achieving positive returns, representing over 90% [3]. - Among the 47 firms with positive returns, 20 had returns below 10%, 21 had returns between 10% and 19.99%, and 6 firms achieved returns of 20% or more [3]. Group 2: Strategy Performance - The average return for 14 large subjective private equity firms was 5.51% in the first half of 2025 [4]. - Notable firms like Shenzhen Rido Investment and Shanghai Harmony Huiyi Asset Management performed well under subjective strategies, emphasizing the importance of fundamental analysis and long-term holdings [5]. Group 3: Quantitative Private Equity - The performance of large quantitative private equity firms was particularly impressive, with an average return of 13.72% among 32 firms, all of which reported profits [7]. - The success of quantitative firms is attributed to their strategy models aligning well with the current market trends, particularly the small-cap growth style [7][8]. - The number of large quantitative private equity firms increased to 39, with over 2,300 new products registered in the first half of 2025 [8][9]. Group 4: Market Outlook - Large private equity firms are optimistic about the market in the second half of 2025, citing opportunities in Chinese assets due to global capital rebalancing [11]. - Firms like Xing Shi Investment expect A-shares to benefit from a combination of emotional and fundamental recovery, supported by ample liquidity and reasonable valuations [11]. - Emerging growth opportunities are anticipated to expand beyond new consumption and innovative pharmaceuticals into technology and cyclical industries, with a focus on AI, semiconductor equipment, and high-end manufacturing [12].

Core Viewpoint - The performance of active equity funds has shown a positive trend in the first half of the year, with over 70% achieving positive returns, particularly in the pharmaceutical and North Exchange sectors [1][2]. Group 1: Fund Performance - As of June 26, 2023, 6085 out of 7881 equity and mixed-asset funds reported positive returns, representing over 70% [2]. - The leading pharmaceutical fund, Huazhong Pharmaceutical Bio A, achieved a return of 75.91%, while several others exceeded 50% [2]. - North Exchange-themed funds also performed well, with the CITIC Construction North Exchange Select Fund yielding 80.71% [2]. Group 2: Market Outlook - Institutions maintain a cautiously optimistic view for the second half of the year, expecting a continuation of structural market characteristics [1][3]. - Key sectors for investment include technology, new consumption, and innovative pharmaceuticals, which are seen as having strong growth potential [1][4]. - The A-share market is anticipated to exhibit clear structural features, with the index likely oscillating around a central point [3]. Group 3: Investment Strategies - Investors are advised to focus on low-entry opportunities rather than chasing high prices, given the rapid rotation of market styles [4][5]. - Specific areas of interest include technology, new consumption, stable dividend stocks, and sectors benefiting from policy support [5]. - The expected policy measures are likely to positively influence investor sentiment and the equity market [5].

Core Viewpoint - The overall expectation for the A-share market in the second half of 2025 is a continuation of the current oscillation and rapid rotation of hot topics, with no systemic large-scale rally anticipated [2][3] Market Assessment - Multiple institutions predict that the market will likely maintain a fluctuating pattern with significant thematic rotation [3] - The uncertainty surrounding the recovery of corporate profit growth is a key factor limiting the potential for a broad market rally [3] - The focus on corporate earnings performance is expected to contribute positively to market dynamics, with fundamental factors likely to outperform historical averages [3][4] Investment Strategy - A consensus strategy among professional institutions is to adopt a balanced allocation to manage risks while selectively focusing on structural opportunities for returns [5] - The importance of monitoring macroeconomic highlights is emphasized, with adjustments to investment strategies based on key areas such as investment, consumption, and exports [4][5] Key Directions for Investment - Institutions identify four main investment directions: 1. Deepening investments in the technology sector, particularly in areas like AI, semiconductors, and military technology [6] 2. Capitalizing on the new consumption wave, including experiential and AI-enabled consumption models [6] 3. Focusing on stable dividend assets in a weak recovery environment [6] 4. Following national policy directions, particularly in sectors like power generation and coal chemical industries [6] Short-term Outlook - Some institutions maintain an optimistic short-term outlook, suggesting a "dual-line layout" strategy that includes focusing on sectors with improving industry conditions and stable earnings [7] - The A500 index is highlighted as a key investment vehicle for capturing growth in emerging sectors [7] Long-term Perspective - Long-term confidence in the market is supported by signs of fundamental improvement and potential capital inflows [8][9] - The low valuation of the Chinese stock market compared to global peers is expected to attract both traditional and new foreign investments [9]

Investment Rating - The report maintains a positive view on the long-term structural story of the Chinese equity market, suggesting a balanced approach with both tech/growth and cash return exposure [2][17]. Core Insights - Market volatility is expected to rise in the near term due to several upcoming global trade and tariff events, which could dampen market risk appetite [3][9]. - The report highlights a normalization trend in MSCI China's earnings results, predicting that the 2Q results will be in line with expectations, but warns of potential skepticism in the second half of 2025 [10][11]. - There is a rising trend in return on equity (ROE) driven by regulatory reforms and corporate governance improvements, alongside a shift towards high-quality large-cap tech and financial companies [19]. - The report anticipates a gradual return of global capital to China's market over the next 6-12 months, driven by diversification needs amid potential USD weakness [17][21]. Summary by Sections Upcoming Events - Key dates include July 9, marking the expiration of a tariff pause, and August 12, which signifies the end of a China-specific tariff pause, both of which could lead to increased market uncertainty [3][9]. - The report notes that the upcoming 2Q results season may reignite concerns over earnings, particularly as it coincides with tariff negotiations [10][11]. Market Dynamics - The report emphasizes the importance of maintaining exposure to high-quality tech and Internet companies with strong AI and R&D capabilities, while also considering dividend yield plays [21]. - It suggests that the structural improvements in the Chinese equity market identified since 2H2024 remain intact, with potential for fund inflows [16][17]. Stock Recommendations - The report recommends removing Pop Mart (9992.HK) from the focus list due to regulatory concerns and adding PICC P&C (2328.HK) for its attractive yield and resilience during market volatility [13].

Investment Rating - The report maintains a positive view on the long-term structural story of the Chinese equity market, suggesting potential for fund inflows over the next 6-12 months [17][21]. Core Insights - Market volatility is expected to rise in the near term due to several upcoming global trade and tariff events, which could impact market risk appetite [3][9]. - The upcoming 2Q results season may reignite concerns over earnings, although the expectation is for results to be in line with previous quarters [10][11]. - Investor sentiment may be dampened by the expiration of lockup periods for high-momentum stocks, prompting preemptive reductions in exposure [12]. - The likelihood of major stimulus measures being introduced at the July Politburo meeting is low, with expectations shifting towards September or October for potential policy adjustments [14][15]. Summary by Sections Market Conditions - The report highlights critical dates in July and August that could lead to increased market volatility, including the expiration of tariff pauses and ongoing trade negotiations [3][4][9]. - The report notes that while the Chinese market has shown signs of recovery, uncertainties surrounding trade negotiations and earnings results could lead to temporary profit-taking [11][22]. Earnings Outlook - The report anticipates that the 2Q earnings results will align with expectations, following a trend of normalization in earnings delivery since late 2024 [10][11]. - Concerns over earnings may be exacerbated by the timing of results coinciding with tariff negotiations, potentially leading to skepticism in the second half of 2025 [11]. Investment Strategy - The report suggests a balanced investment approach, advocating for exposure to high-quality tech and Internet companies while maintaining some dividend yield plays [21][22]. - The removal of Pop Mart from the focus list and the addition of PICC P&C is recommended due to its attractive yield and resilience during market volatility [13]. Long-term Outlook - Structural improvements in the Chinese equity market remain intact, with MSCI China trading at a fair valuation compared to other major indices [17][19]. - The report emphasizes the potential for global capital to gradually return to China's market as investors seek diversification amid a slower macro outlook [17][21].

Core Viewpoint - The sentiment of foreign investors towards the Chinese market is improving, with a focus on the recovery of the domestic economy and the ongoing dynamics of Sino-U.S. relations [1][4]. Group 1: Structural Improvement in the Stock Market - Since the second half of 2024, the Chinese stock market has been experiencing structural improvements, driven by a rebound in ROE and the rise of new technology sectors [4]. - Domestic leading companies are demonstrating operational resilience and growth momentum through measures such as shareholder returns, stock buybacks, and moderate leverage, contributing to sustainable ROE recovery and valuation uplift [4]. - Global investors express a willingness to increase their allocation to Chinese stocks, acknowledging that their current allocation is 2.4 percentage points below the MSCI Emerging Markets benchmark, indicating potential for increased investment [4][6]. Group 2: Interest in AI and Technology - Foreign investors are increasingly interested in AI, technology-related themes, and new consumption trends, recognizing missed opportunities in China's technological advancements since 2021-2022 [6]. - Concerns about China's competitiveness in global technology have shifted, with breakthroughs in AI and advancements in electric vehicles and robotics prompting a reevaluation of investment strategies [6]. Group 3: Key Topics of Interest - The recovery of the domestic economy remains a focal point for foreign investment banks, with challenges to sustainable growth still present [9]. - Catalysts for market observation include fiscal policy timing and scale, export resilience, real estate market stabilization, and the evolution of Sino-U.S. tariffs [10][12]. - The divergence between A-shares and H-shares is of interest, attributed to differences in industry composition and the concentration of high-ROE sectors in the Hong Kong market [12]. Group 4: Investment Strategy Consensus - In the context of structural improvements in the Chinese stock market and the clear intent of foreign investors to increase allocations, a balanced approach with selective stock picking is a common consensus among institutions [15].

Core Viewpoint - The A-share market is expected to experience a steady upward trend due to continued policy support and medium to long-term capital inflows, with current valuations near the average since 2010 [1] Group 1: Market Outlook - The A-share market is anticipated to stabilize and rise, supported by incremental capital inflows and policy initiatives [1] - The market's future opportunities will depend on incremental changes, with stable capital providing a buffer against unexpected downturns [3] - The Shanghai Composite Index and ChiNext Index are currently at average price-to-earnings ratios of 13.69 and 35.80, respectively, suitable for medium to long-term investment [4] Group 2: Investment Strategies - Focus on three asset categories: stable assets (high dividends, gold), self-sufficient industrial chains, and domestic consumption [1] - Emphasize a "dumbbell" investment strategy, balancing high-dividend sectors like banking with emerging themes in new consumption [3] - Short-term investment opportunities are highlighted in sectors such as software development, internet services, and consumer electronics [4] Group 3: Market Activity - On a recent trading day, the A-share market opened high and experienced slight fluctuations, with significant performance in software development and internet services [4] - The total trading volume reached 12,136 billion, above the three-year daily average, indicating enhanced market liquidity [4] - Continuous net inflows from northbound funds and increased holdings from institutional investors suggest a resilient market environment [4]

Group 1 - The core viewpoint is that the active public funds will increasingly focus on core asset pricing rather than marginal information flow pricing, leading to a potential overall adjustment in strategy paradigms [1] - The new regulations on public fund assessments may significantly impact the deviation from benchmarks and the ratio of profitable clients, with historical data showing that a large portion of active funds has underperformed the CSI 300 index [1] - The recent performance of public funds has been generally below benchmarks, attributed to underweighting banks and frequent trading, indicating a trend towards conservative allocation [1] Group 2 - The public fund reforms are expected to increase domestic capital allocation towards Hong Kong stocks, particularly in technology and consumer sectors, supported by positive policy attitudes [2] - The market sentiment may improve due to the easing of trade tensions between China and the U.S., which could enhance the relative performance of Hong Kong stocks [2] - The low valuations and policy support for Hong Kong's technology and consumer sectors remain attractive for investors [2] Group 3 - The A-share market is anticipated to experience a structural bull market, driven by technology sectors, despite external uncertainties such as U.S. tariffs and trade negotiations [3] - The current financial easing is linked to stabilizing the capital market, although it may not lead to a comprehensive improvement in the A-share market's fundamentals [3] - The first quarter reports indicate strong performance in consumption, pharmaceuticals, and technology sectors, with technology showing superior relative value [3] Group 4 - The A-share market is expected to present structural opportunities as the performance verification period ends, although uncertainties from U.S.-China trade negotiations remain a concern [4] - Recommendations include focusing on dividend-paying stocks for defensive positioning, technology sectors for growth, and consumer sectors supported by policy initiatives [4] - The market is likely to maintain a range-bound pattern due to external uncertainties and the gradual impact of tariffs on domestic economic recovery [4] Group 5 - The initial phase of market volatility is expected to extend due to the complexities of U.S. tariffs, with a potential breakthrough later in the year driven by policy and capital [5] - The market's response to tariff impacts has created disturbances that require time to digest, but the overall bullish trend remains intact [6] - The influx of capital since last September is based on confidence in policy, long-term valuations, and industry trends, suggesting stability in the market [6] Group 6 - The market has recovered to pre-tariff levels, supported by liquidity from state-owned entities and resilient consumer demand [7] - The second quarter is expected to see accelerated policy implementation, which may further enhance market conditions [7] - Investment strategies should focus on small-cap growth stocks and stable dividend-paying sectors under the backdrop of continued monetary easing [7] Group 7 - The market's recovery is seen as temporary, with potential for increased volatility as economic weaknesses become evident [8] - The focus on financial stability and large-cap stocks is expected to gain traction, driven by policies aimed at expanding domestic demand [8] - The structural changes in the market may lead to a shift towards traditional consumer assets with high return on equity [8] Group 8 - The outlook for the bond market remains optimistic, with potential for new lows in interest rates, while the stock market is advised to maintain a cautious stance amid ongoing tariff negotiations [9] - Investment opportunities are identified in technology sectors and new consumption areas, with a focus on strategic positioning as market conditions evolve [9] - The emphasis is on monitoring economic impacts from tariffs and adjusting investment strategies accordingly [9] Group 9 - The re-evaluation of Chinese assets is expected to lead to a gradual increase in A-share market levels, supported by domestic policy responses to external challenges [10] - The focus on AI and innovative sectors, along with consumer trends, is highlighted as key areas for investment [10] - The capital market's role in stabilizing expectations is crucial, with anticipated policy measures to support the market amid trade uncertainties [10] Group 10 - Three main investment themes are identified: TMT sector performance, low-cycle stocks benefiting from growth policies, and stable utility sectors with strong earnings [12] - The overall market performance is improving, with emerging growth sectors showing promising results [12] - The focus on low-valuation financial sectors is recommended as they align with the shifting investment strategies of equity funds [12]