Global Markets Strategy 26 January 2026 This material is neither intended to be distributed to Mainland China investors nor to provide securities investment consultancy services within the territory of Mainland China. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. China Equity Strategy Shenzhen Opportunity Forum takeaways On 20-21 January, the 2026 JPM China Opportunity Forum brought together 100+ companies and 210+ investors. We s ...

LG新能源成立新团队负责北美的ESS业务。 ...

13 January 2026 | 4:28PM CST Equity Research CHINA INDUSTRIAL TECH: DATA CENTER ELECTRICALS The Export Alpha – Buy Kstar on US AIDC ODM Wins; Neutral on Kehua We reiterate Buy on Kstar (12m TP of Rmb67.6, 26% upside) and Neutral on Kehua (12m TP of Rmb50.5, 24% downside), two diverging investment stories within data center electricals. While both benefit from secular power demand, we see Kstar as better positioned to capture the high-margin US AIDC growth. Conversely, Kehua remains more exposed to the domes ...

Summary of Contemporary Amperex Technology Co. Ltd. (CATL) Conference Call Company Overview - **Company**: Contemporary Amperex Technology Co. Ltd. (CATL) - **Ticker**: 300750.SZ - **Industry**: Energy & Chemicals, specifically in the battery manufacturing sector Key Points VAT Refund Adjustment Impact - The reduction of the battery value-added tax (VAT) refund rate from 9% in 2025 to 6% effective April 26, 2026, is expected to have a limited impact on CATL's earnings, similar to the previous year's adjustment [2][4] - CATL's earnings resilience is attributed to: 1. Ability to implement price increases to offset margin pressure 2. Ongoing overseas capacity expansion diversifying revenue streams 3. Financial buffers from warranty and customer rebate provisions [2] Challenges for Tier-2 Battery Manufacturers - The VAT refund cut will significantly challenge tier-2 battery manufacturers, who have relied on higher VAT refunds for aggressive pricing strategies [3] - These smaller players may face margin compression and competitive pressure, potentially accelerating industry consolidation as weaker players struggle to maintain profitability [3] CATL's Market Position - CATL is positioned as a global leader in EV battery technology, benefiting from strong pricing power, scale advantages, and international growth initiatives [4] - Historical evidence suggests that policy-driven changes like VAT adjustments have limited earnings sensitivity for CATL [4] Earnings Impact Analysis - The expected impact on earnings due to the VAT refund adjustment is projected to be a decrease of Rmb 3,244 million in 2025, translating to a -5% impact on earnings, and a decrease of Rmb 1,865 million in 2026, translating to a -2% impact [9] Valuation and Financial Metrics - CATL's current market cap is Rmb 1,680,381 million, with an expected revenue growth from Rmb 410,628 million in 2025 to Rmb 612,448 million in 2027 [7] - The company is rated as "Overweight" with a price target of Rmb 490.00, indicating a potential upside of 33% from the current price of Rmb 369.23 [7] Risks and Opportunities - **Upside Risks**: - Faster-than-expected EV penetration and energy storage system (ESS) application - Lower geopolitical risks and better-than-expected margins - Higher-than-expected market share gains [13] - **Downside Risks**: - Weaker EV penetration and ESS application - Potential threats from other battery manufacturers - Geopolitical risks leading to supply chain decoupling [13] Additional Insights - CATL's strategic expansion into overseas markets and continued innovation in energy storage solutions are expected to support long-term margin stability and revenue growth [4] - The company is advised against front-loading exports ahead of the VAT adjustment to avoid material cost inflation and further margin pressure [5] This summary encapsulates the critical insights from the conference call regarding CATL's financial outlook, market position, and the implications of the VAT refund adjustment on the broader battery manufacturing industry.

Summary of China Solar Sector Conference Call Industry Overview - The conference call focused on the **China Solar Sector**, particularly the impact of recent changes in export VAT rebate policies on solar and battery products [1][2]. Key Points Export VAT Rebate Changes - The **Ministry of Finance and State Taxation Administration of PRC** announced the abolition of export VAT rebates for solar products (excluding inverters) from **1 April 2026**, and a reduction from **9% to 6%** for battery products, including Energy Storage Systems (ESS), effective from **1 April 2026** and abolishing on **1 January 2027** [1]. - The **National Development and Reform Commission (NDRC)** stated that the objective is to eliminate preferential treatment due to excessive competition in the industry and to address overseas concerns regarding anti-dumping activities from China [2]. Impact on Companies - **Sungrow**, an inverter and ESS maker, confirmed that the new policy will not affect its inverter sales but will increase the cost of sales for its ESS exports by **3%** due to the VAT rebate cut. This is expected to lower its gross profit by **0.9%** [3]. - **Tongwei**, a polysilicon manufacturer, indicated that the export VAT rebate cut would likely lead to higher average selling prices (ASP) and estimated an increase in total operating costs by **Rmb364 million** or **0.9%**. However, the gross loss is projected to increase **1.6 times** to **Rmb592 million** in the near term [6]. - **Trina Solar**, a solar module maker, had anticipated the VAT rebate cut and included it in contracts with customers. The company reported a **37.6%** year-over-year increase in export volume to **120.3 GW** during July-November 2025, attributed to the expected cancellation of export tax rebates [7]. Market Outlook - The cancellation of export VAT rebates is expected to accelerate consolidation in the PRC solar industry by eliminating less efficient players, which could benefit industry leaders like **Tongwei** in the long term [6]. - Analysts maintain **Buy ratings** on ESS makers **Sungrow** and **Deye**, indicating confidence in their ability to navigate the changes [1]. Additional Insights - The conference highlighted the importance of adapting to regulatory changes and the potential for price adjustments in response to the new VAT policies. Companies are preparing for these changes by adjusting their pricing strategies and operational costs [7]. - The overall sentiment in the industry suggests a shift towards a more market-oriented approach, as indicated by the NDRC's comments on anti-involution measures [7]. Conclusion - The recent changes in export VAT rebate policies are expected to have a significant impact on the China solar sector, particularly affecting cost structures and pricing strategies for companies involved in solar and battery production. The long-term outlook suggests potential benefits for industry leaders as consolidation occurs in response to these regulatory changes [1][6].

Core Viewpoint - The automotive industry is currently engaged in a competitive marketing battle over Advanced Emergency Steering (AES) technology, reminiscent of the previous Automatic Emergency Braking (AEB) marketing wars, with companies emphasizing their unique capabilities and features to attract consumer attention [1][5][20]. Group 1: Marketing Competition - Companies are increasingly comparing their AES features, with claims of enhanced performance such as higher speed effectiveness and more complex operational environments [5][12]. - The marketing strategies have evolved to showcase AES capabilities in dramatic scenarios, such as performing evasive maneuvers or continuous obstacle avoidance, which may mislead consumers about the technology's reliability [18][20]. Group 2: Technology Evolution - AES, which stands for Automatic Emergency Steering, is an evolution from earlier Evasive Steering Support (ESS) systems that provided driver assistance rather than full automation [9][11]. - The transition to fully automated AES began in July 2024, with major brands like Li Auto and NIO introducing their versions of the technology, leading to a proliferation of marketing claims [12][20]. Group 3: Safety Concerns - The complexity of traffic scenarios makes the effectiveness of AES difficult to quantify, raising concerns about the potential for over-reliance on the technology during critical driving situations [17][20]. - The emphasis on continuous maneuvering capabilities in marketing may inadvertently promote risky driving behaviors, as the technology's limitations and the importance of driver awareness are often downplayed [18][22]. Group 4: Historical Context - The current AES marketing strategies echo the earlier AEB discussions, where the focus shifted from safety and reliability to eye-catching promotional tactics [20][22]. - Historical systems like ESS were designed with a focus on driver control and safety, contrasting with the current trend of promoting automated features without adequate consideration of their implications [22].

Core Insights - JinkoSolar reported a significant net loss of RMB749.79 million (US$105.32 million) for Q3, contrasting with a net income of RMB22.53 million in the same quarter last year [1] - Total revenues for the quarter decreased by 34.1% to RMB16.16 billion (US$2.27 billion) from RMB24.51 billion year-over-year [1] Shipment and Production Outlook - Quarterly shipments reached 21,570 MW, which includes 20,014 MW for solar modules and 1,556 MW for cells and wafers, marking a 16.7% increase year-over-year [2] - For Q4, the company anticipates total solar module shipments to range between 18.0 GW and 33.0 GW [2] - For the full year 2025, JinkoSolar estimates total shipments, including solar cells and wafers, to be between 84 GW and 100 GW, with energy storage system (ESS) shipments expected to be around 6 GWh [3] - The company projects its annual production capacity for mono wafers, solar cells, and solar modules to reach 120.0 GW, 95.0 GW, and 130.0 GW, respectively, by the end of 2025 [3]

Investment Rating - The report maintains a positive outlook on various sectors, with specific "Buy" ratings for companies such as AIA Group, ASMPT, Atour, Hengrui, Sunny Optical, Tencent, and others [13][14][28][33]. Core Insights - The 15th Five-Year Plan (FYP) emphasizes technological innovation, consumption rebalancing, and building a strong domestic market, which are expected to drive growth in sectors like technology, healthcare, and renewables [14][29]. - The report anticipates a stable external environment for China, with net exports remaining a key growth driver despite potential challenges from high bases and external demand uncertainties [7]. - The healthcare sector is highlighted as a key beneficiary of government policies, with a focus on innovation and globalization, particularly in medical devices and pharmaceuticals [29]. - The consumer sector is shifting towards experience and service consumption, with a growing emphasis on well-being and the silver economy, indicating potential growth areas for companies in these segments [27]. Economics - The report projects a growth target of around 5.0% YoY for 2026, with a focus on policy continuity and structural support for consumption [7]. - The RMB exchange rate is expected to become a focal point, with potential for significant movements as trade tensions ease and internationalization efforts continue [7]. Commodities - The report notes a shift in China's commodity fundamentals due to economic transitions, with a focus on domestic demand and energy self-sufficiency [9][10]. - The Action Plan for the Nonferrous Metals Industry indicates a shift towards high-quality growth, with supply growth expected to remain constrained [9]. Sector Views - **Autos and Parts**: The sector is poised for growth driven by advancements in Robotaxi and ADAS technologies, with key players expected to benefit from commercialization efforts [19]. - **Banks**: The banking sector is expected to outperform due to positive earnings growth and attractive dividend yields, particularly among large H-share banks [22]. - **Brokers**: The report highlights a trend of households reallocating wealth into equities, benefiting brokers as market proxies [26]. - **Consumer**: Key investment themes include a shift towards experiential consumption and a focus on well-being, with specific companies identified as top buys [27][28]. - **Healthcare**: Innovation and globalization are seen as critical drivers, with a focus on companies with strong pipelines and global expansion capabilities [29]. - **Insurance**: The sector is viewed positively, with opportunities arising from comprehensive enhancements across various business lines [33]. Top Buys - The report lists several top buy recommendations across sectors, including AIA Group, Hengrui, Tencent, and Anta, among others, indicating strong growth potential and favorable market conditions [13][14][28][33].

Summary of Conference Call Notes Industry Overview - The conference call discusses the **China Industrial Technology** sector, focusing on companies involved in PCB, energy storage systems (ESS), consumer electronics, and industrial automation. Key Highlights 1. **3Q25 Results**: - Overall results were mostly in-line with sector averages showing revenue and operating profit growth of **+18%** and **+17%** year-over-year respectively [1] - Notable performance from major domestic PCB customers driven by AI applications, particularly from **Hans Laser** [1] - Growth in capital expenditures (capex) for batteries and consumer electronics [1] - Resilient market share gains in the industrial automation (IA) segment, particularly for **Inovance** [1] 2. **Challenges Faced**: - Smaller players like **Pony Testing** and **HCFA** struggled with scaling and profitability [1] - Prolonged capex weakness in process automation markets such as steel and chemicals affected companies like **Baosight** and **Supcon** [1] - Temporary delays in defense orders impacted **AVIC Jonhon**, alongside high exposure to precious metals leading to margin deterioration [1] 3. **Margin Trends**: - Smaller players are more vulnerable in a deflationary environment with average selling price (ASP) pressures [2] - **AVIC Jonhon** faced margin deterioration due to precious metal price hikes [2] - Larger companies like **Sanhua** achieved margin beats through stringent SG&A cost control [2] - **Kstar** reported a gross profit margin (GPM) increase of over **3 percentage points** in its ESS segment due to a favorable product mix [2] Actionable Investment Ideas 1. **Buy Recommendations**: - **Hans Laser**: Strong demand in PCB and consumer electronics, with a **+96%** year-over-year growth in 3Q25 [3] - **Kstar**: Positive outlook with diversified customer base and robust ESS pipeline [3] - **Inovance**: Resilient momentum in industrial automation [3] - **Nari Tech** and **Centre Testing**: Defensive plays with stable margins [3] 2. **Sell Recommendations**: - **Raycus**: Limited military end-market sales [3] - **Baosight**: Continued weakness in domestic steel industry capex [3] - **Sanhua-A**: Potential profit-taking pressure due to overly optimistic market expectations [3] Sector Focus Areas 1. **AI Demand**: - **Hans Laser** is experiencing strong growth in PCB equipment sales due to capex expansion from key suppliers like **Victory Giant** for NVIDIA [6] - **Kstar** anticipates higher year-over-year sales growth in data center products driven by domestic and overseas orders [6] 2. **Energy Storage**: - **Sungrow** expects **40%-50%** global ESS installation growth in 2026, driven by renewable energy needs and market-driven policies in China [7] - **Kstar** aims to double its ESS sales growth in 2025, optimistic about demand outlook [7] 3. **Consumer Electronics**: - **OPT** anticipates stronger demand due to shifts in product form factors, particularly with Apple's upcoming products [8] - **Hans Laser** benefits from solid demand for iPhone 17 and next-generation smartphones [8] 4. **Overseas Expansion**: - **Hongfa** holds a dominant market share in HVDC relays and plans to expand capacity in Germany and Indonesia [10] - **Inovance** is also expanding overseas to support sales growth [10] Conclusion The China Industrial Technology sector shows a mix of strong growth opportunities, particularly in AI and energy storage, while facing challenges from smaller players and specific market weaknesses. Investment strategies should focus on larger, resilient companies with strong growth prospects while being cautious of smaller firms facing profitability issues.

Summary of Key Points from the Conference Call Industry Overview - **Industry**: AI Infrastructure in China - **Projected AI Capex**: China’s AI capital expenditure (capex) is expected to reach RMB800 billion (approximately US$110 billion) by 2030, accounting for one-third of total AI capex in China [1][62] - **Global AI Capex**: Global AI-related capex is projected to exceed US$1.2 trillion by 2030, nearly tripling from 2025 levels [1][54] - **China's AI Capex Growth**: Expected to grow from RMB600-700 billion (US$85-95 billion) in 2025 to RMB2-2.5 trillion (US$280-350 billion) by 2030, with a CAGR of 25-30% [1][61] Power Demand and Data Centers - **Power Consumption**: China's data centers are projected to consume 277 TWh of electricity by 2030, up from 102 TWh in 2024, representing a CAGR of 18% [1][42] - **Global Data Center Power Demand**: Global data center power consumption is expected to grow 2.3 times from 416 TWh in 2024 to 946 TWh in 2030 [1][28] Opportunities in Power Supply - **Nuclear Power**: China's nuclear capacity is expected to grow from 60 GW in 2025 to 100 GW in 2030, accounting for 60% of global capacity under construction [2][29] - **Power Equipment Demand**: Strong demand for transformers and power equipment is anticipated due to grid upgrades and rising renewable energy investments [2][45] - **Energy Storage Systems (ESS)**: The global ESS market is expected to grow at a CAGR of 21% from 2024 to 2030, with significant growth in China [2][47] Cooling and Metals Demand - **Cooling Market Growth**: The liquid cooling market in China is expected to grow at a CAGR of 42% from 2025 to 2030, driven by the increasing power density of AI workloads [3][50] - **Copper and Aluminum Demand**: Direct AI use of copper is projected to reach approximately 1 million tons by 2030, accounting for 5-6% of total copper demand. Data centers are expected to drive 936 kt of copper demand by 2030 [3][49] Investment Recommendations - **Key Stocks**: - **Power Equipment**: Buy recommendations for Sieyuan, Jinpan, and Huaming due to expected growth in power equipment demand [2][45] - **Nuclear**: Buy CGN Mining and Doosan Enerbility for exposure to nuclear power growth [2][44] - **Cooling Solutions**: Buy AVC for liquid cooling solutions [3][50] - **Metals**: Buy Zijin Mining, CMOC, and Chalco for copper and aluminum exposure [3][49] Additional Insights - **Government Support**: Continued government spending and initiatives are expected to drive AI capex growth in China [1][61] - **Energy Security**: The link between AI leadership and energy security is emphasized, highlighting the need for reliable power sources [1][42] - **Technological Advancements**: Emerging technologies in cooling and power supply are expected to create further investment opportunities [2][48] This summary encapsulates the critical insights and projections regarding the AI infrastructure landscape in China, highlighting the expected growth in capital expenditure, power demand, and investment opportunities across various sectors.