Core Viewpoint - The investment strategy outlook for 2026 by CITIC Securities emphasizes the profound impact of the AI industry revolution, likening it to the Industrial Revolution, and suggests a long-term perspective is necessary for analysis [1] Group 1: AI and Computing Demand - CITIC Securities expresses optimism regarding the demand for computing power driven by AI, highlighting sectors such as optical modules, optical devices, optical chips, switches, liquid cooling, IDC, and edge AI [1] Group 2: Traditional Communication Industry - The traditional communication industry is facing challenges due to decreased capital expenditure from telecom operators, leading to low market expectations [1] - Despite the current challenges, the development of key technologies for 6G has commenced, and the increased focus on AI by operators is noteworthy [1] Group 3: Quantum Technology - Both China and the United States are placing significant emphasis on quantum technology, with related companies in the U.S. stock market experiencing substantial gains [1] - It is recommended to pay close attention to segments such as dilution refrigeration machines and low-temperature coaxial cables [1]

Group 1 - The AI industry revolution is ongoing, with strong demand for computing power and promising applications [1] - The "14th Five-Year Plan" emphasizes the acceleration of a new round of technological revolution and industrial transformation, implementing the "Artificial Intelligence +" initiative [1] - The telecommunications operators' capital expenditure is expected to decline, but the research on 6G technology has commenced, indicating potential recovery in the future [2] Group 2 - The focus on quantum technology is increasing in both China and the U.S., with significant developments such as NVIDIA's NVQLink for connecting GPUs to quantum processors [3] - The report highlights several companies with investment potential, including Zhongji Xuchuang, Xinyi Sheng, Yuanjie Technology, and others, as key recommendations for 2026 [4]

Investment Rating - The report maintains a rating of "Accumulate" for China Telecom with a target price of 9.07 CNY [6][12]. Core Insights - For the first three quarters of 2025, China Telecom reported revenue of 394.3 billion CNY, a year-on-year increase of 0.6%, with service revenue at 366.3 billion CNY, up 0.9%. The net profit attributable to shareholders was 30.8 billion CNY, reflecting a 5.0% increase, which outpaced revenue growth [2][12]. - The report highlights strong performance in new business segments, with 5G network users reaching 290 million, a penetration rate of 66.9%. IDC revenue grew by 9.1% to 27.5 billion CNY, while intelligent revenue surged by 62.3% [12]. Financial Summary - Total revenue projections for 2025-2027 are 538.5 billion CNY, 553.5 billion CNY, and 568.8 billion CNY respectively, with net profits expected to be 34.7 billion CNY, 36.3 billion CNY, and 37.7 billion CNY [4][12]. - The financial metrics indicate a steady increase in net profit margins and return on equity, with a projected net profit margin of 6.4% for 2025 [4][12].

Core Viewpoint - The company reported a slight revenue growth of 0.6% year-on-year for the first three quarters of 2025, with a total revenue of 394.3 billion yuan, and a net profit increase of 5.0% to 30.8 billion yuan, indicating a stronger profit growth compared to revenue growth [1][2]. Financial Performance - Revenue for the first three quarters of 2025 reached 394.3 billion yuan, with service revenue at 366.3 billion yuan, reflecting a year-on-year increase of 0.6% and 0.9% respectively [2]. - The net profit attributable to the parent company was 30.8 billion yuan, up 5.0% year-on-year, while the non-recurring net profit remained stable at 28.7 billion yuan [1][2]. - In Q3 2025, the company reported a revenue of 124.8 billion yuan, a decrease of 0.91% year-on-year, and a net profit of 7.76 billion yuan, which is an increase of 3.60% year-on-year [2]. Business Growth - The company experienced significant growth in new business areas, with 5G network users reaching 290 million, a penetration rate of 66.9%, and gigabit broadband user penetration at approximately 31.0% [2]. - IDC revenue grew by 9.1% year-on-year to 27.5 billion yuan, while security revenue increased by 12.4% to 12.6 billion yuan. Other notable growth areas included smart revenue (62.3% increase), video network revenue (34% increase), satellite communication revenue (23.5% increase), and quantum revenue (134.6% increase) [2]. Cost and Cash Flow - In Q3 2025, the company's expense ratios were as follows: sales (10.40%), management (6.90%), finance (0.13%), and R&D (3.48%), with respective year-on-year changes of +0.98 percentage points, -0.28 percentage points, -0.08 percentage points, and +0.24 percentage points [3]. - The net cash flow from operating activities was 87.3 billion yuan, with a year-on-year decline narrowing to 10.37% [3].

Investment Rating - The report maintains an "Outperform" rating for the company [4][9]. Core Insights - The company is projected to achieve revenues of RMB 5.39 trillion, RMB 5.54 trillion, and RMB 5.69 trillion for the years 2025 to 2027, with net profits attributable to shareholders expected to be RMB 34.70 billion, RMB 36.30 billion, and RMB 37.70 billion respectively [4][9]. - For the first three quarters of 2025, the company reported revenues of RMB 3.94 trillion, a year-on-year increase of 0.6%, with service revenues at RMB 3.66 trillion, up 0.9% year-on-year. The net profit attributable to shareholders was RMB 30.80 billion, reflecting a 5.0% increase year-on-year, which outpaced revenue growth [4][9]. - The report highlights strong growth in emerging business sectors, with 5G users reaching 290 million and a penetration rate of 66.9%. The revenue from IDC was RMB 27.50 billion, up 9.1% year-on-year, while security revenue was RMB 12.60 billion, up 12.4% year-on-year [4][9]. Financial Summary - The financial summary indicates total revenue for 2023A at RMB 507.84 billion, with a projected growth of 6.9% for 2024A and a steady increase of approximately 2.8% annually through 2027E [3]. - Net profit attributable to shareholders for 2023A is reported at RMB 30.45 billion, with expected growth rates of 10.3% for 2024A and 5.2% for 2025E [3]. - The report provides a detailed breakdown of financial ratios, including a projected price-to-earnings (P/E) ratio of 18.08 for 2025E and a price-to-book (P/B) ratio of 1.8 for the same year [3][4].

Market Overview - On October 22, the Shanghai Composite Index fell by 0.07%, the CSI 300 decreased by 0.33%, the STAR Market 50 dropped by 0.06%, the CSI 1000 declined by 0.43%, the ChiNext Index fell by 0.79%, and the Hang Seng Index decreased by 0.94% [4] - The best-performing sectors on October 22 were Oil & Petrochemicals (+1.58%), Banking (+0.97%), Home Appliances (+0.82%), Real Estate (+0.75%), and Media (+0.59%). The worst-performing sectors were Non-ferrous Metals (-1.36%), Power Equipment (-1.29%), Agriculture, Forestry, Animal Husbandry and Fishery (-1.19%), Defense and Military Industry (-1.17%), and Coal (-1.03%) [4] - The total trading volume of the A-share market on October 22 was 1,690.3 billion yuan, with a net inflow of 10.018 billion Hong Kong dollars from southbound funds [4] Company Analysis: China Telecom (601728) - On October 21, 2025, China Telecom released its third-quarter report, showing a revenue growth of 0.6% year-on-year for the first three quarters, with service revenue increasing by 0.9% and net profit attributable to shareholders rising by 5.0% [5] - In the third quarter alone, revenue decreased by 0.9% year-on-year, while service revenue grew by 0.5%. Revenue from terminal products fell by 18.0%, but this had a limited impact on profits. New businesses such as AI computing power continued to grow rapidly [5] - IDC revenue increased by 9.1% year-on-year, with a notable acceleration in growth compared to the first half of 2025 (+7.4%). Smart revenue surged by 62.3%, satellite communication revenue grew by 23.5%, and quantum revenue skyrocketed by 134.6% [5] - Investment opportunities are highlighted by the dual attributes of dividends and computing power, with AI driving increased demand for computing power [5]

Investment Rating - The report maintains a "Buy" rating for the company, indicating an expected relative increase of over 15% compared to the CSI 300 index within the next six months [30]. Core Views - The company reported a revenue of 2.496 billion yuan for H1 2025, representing a year-on-year growth of 15.31%, while net profit decreased by 9.48% to 882 million yuan [4]. - The company is experiencing significant growth in its AIDC business, with a revenue increase of 36.95% year-on-year, contributing 35% to total revenue [5]. - The IDC business revenue grew by 6.15% year-on-year, with a gross margin of 46.92%, although it saw a decline compared to the previous year [5]. - The company has delivered a substantial amount of computing power, with 220MW delivered in H1 2025, and expects to deliver a total of 440MW by the end of the year [6]. - The company is actively seeking quality acquisition targets to strengthen its position in the industry and enhance its leadership in intelligent computing [10]. Financial Performance - For H1 2025, the company achieved a revenue of 2.496 billion yuan, with a net profit of 882 million yuan, reflecting a decline in profitability [4]. - The AIDC segment's gross margin decreased by 16.73% year-on-year, while the IDC segment's gross margin fell by 4.44 percentage points [5]. - The company anticipates a strong revenue growth trajectory, with projected revenues of 5.963 billion yuan in 2025, 7.996 billion yuan in 2026, and 10.335 billion yuan in 2027 [10]. Business Segments - The AIDC business is a key growth driver, with significant revenue contributions and high gross margins despite recent declines [5]. - The IDC business is recovering, with improvements in data center utilization and revenue growth expected as upgrades are completed [5][8]. - The company is focusing on expanding its computing power delivery capabilities, with ongoing construction and upgrades to data centers [9].

Group 1 - The overall performance of A-shares showed slight stabilization in Q2 2025, with marginal improvement in revenue but ongoing pressure on profits. Total revenue for A-shares declined by only 0.02% year-on-year, with a 0.39 percentage point improvement compared to Q1. Excluding financials and oil & petrochemicals, revenue turned positive with a growth of 0.41%, while net profit growth for the parent company dropped to 2.46%, a decrease of 1 percentage point from Q1 [1][2] - The traditional weight sectors showed marginal recovery, while emerging growth sectors faced profit pressure. The net profit of the Shanghai Composite Index grew by less than 1% year-on-year, while the ChiNext maintained over 13% growth. The proportion of loss-making companies was 23.15%, a decrease of 1.5 percentage points from Q1, but over 30% of companies still experienced profit declines, highlighting a pronounced structural divergence [2][3] Group 2 - The technology sector maintained high prosperity, with strong demand and high profit growth in the TMT sector. The electronics industry saw a year-on-year net profit growth of 30%, while the communications sector grew by 8.2%. The AI capital expenditure continued to support the upstream infrastructure sector, with notable performance in optical modules and chips [3][4] - The new energy and high-end manufacturing sectors maintained growth, with the machinery and electrical equipment sectors showing good growth due to sustained demand from the new energy vehicle sector. However, the automotive sector faced profit pressure due to frequent price wars, impacting profit margins [4][5] Group 3 - The consumer sector continued to show a divergence, with overall demand still insufficient to fully reverse the situation. The food and beverage, textile and apparel, and retail sectors all saw declines in net profit. In contrast, the home appliance sector experienced a revenue growth of 4.5% and a net profit growth of nearly 4% in Q2, although this was a slowdown compared to Q1 [6][7] - Looking ahead, the "demand front-loading" from national subsidies may continue to manifest, making it difficult for sectors like home appliances to maintain growth. However, the "new consumption" trend may create a mid-term prosperity trend, with strong growth potential in pet economy, gaming, and other emerging consumption sectors [7][8] Group 4 - Investment suggestions for the second half of the year indicate that the A-share profit pattern may continue to show structural divergence. Three main lines of focus include: 1) Continued capital expenditure in AI driving prosperity in the industry chain, with attention on servers and IDC; 2) Ongoing consumer divergence with the rise of "self-consumption" and "cost-effective consumption," focusing on gaming and pet sectors; 3) Dividend sectors such as transportation and coal, benefiting from "anti-involution" policies, with potential for recovery in profitability and valuation [8]

Summary of Key Points from the Conference Call Industry Overview - The overall profitability of A-shares has turned positive for the first time after years of negative growth, with a net profit growth of 11% in Q1 2025, but a decline in Q2 [1][2] - The Sci-Tech Innovation Board, financial, oil, and petrochemical sectors have negatively impacted overall profitability, while the ChiNext Board has played a positive role [2] Financial Performance - Non-financial and non-oil A-shares showed a slight improvement in operating cash flow year-on-year, but the absolute scale remains low compared to the past three years, indicating unstable cash generation capabilities [1][5] - Capital expenditure has been negative for five consecutive quarters, but the decline has narrowed, with contract liabilities showing a year-on-year growth rate decline, reflecting insufficient recovery in terminal demand [1][6] Leverage and Financial Ratios - The ratio of interest-bearing debt to shareholder equity has slowly increased to a new high since 2022, while financial expenses as a percentage of total revenue have reached a historical low, indicating effective transmission of monetary easing policies to enterprises [1][7] - The return on equity (ROE) for non-financial and non-oil A-shares was 6.44% in Q2, showing signs of stabilization, but total asset turnover has declined, indicating weakened ability to convert assets into revenue [1][8] Sector Performance - Industries with better year-on-year profit changes include agriculture, forestry, animal husbandry, steel, building materials, electronics, and computers [3][9] - The TMT sector, including electronics and computers, performed relatively well on a quarter-on-quarter basis, while cyclical sectors experienced fluctuations due to the transition of old and new driving forces [3][10] Emerging Sectors - The AI sector has shown the best performance among new tracks, with high growth rates in optical modules and copper-clad laminates, while semiconductor equipment has seen negative growth [11] - In the pharmaceutical sector, innovative drugs and medical services have improved significantly, but medical device revenues and profits have declined [12] Investment Opportunities and Risks - The financial sector shows a stable overall performance, with city commercial banks and rural commercial banks leading the growth with 6.7% and 4.4% respectively, making them more attractive compared to large state-owned banks [18][19] - The insurance industry has shown stable performance with double growth in revenue and profit, indicating a positive outlook [20] Cash Flow and Capital Expenditure - Industries with good cash flow and stable growth include education publishing, kitchen appliances, and construction, while sectors like pre-processed food and liquor need to be monitored for cash flow deterioration [21] - The current capital expenditure remains in negative growth, but the decline is narrowing, indicating potential recovery in the future [14] Market Dynamics - Large and mid-cap stocks have performed better than small-cap stocks, with mid-cap stocks showing stronger growth in both revenue and profit [22] - Different scales of enterprises show significant performance disparities, with large enterprises generally outperforming small ones in technology and manufacturing sectors [23][24] This summary encapsulates the key insights from the conference call, highlighting the performance of various sectors, financial metrics, and potential investment opportunities and risks.

Core Insights - The report from Guosheng Securities highlights a significant surge in computing power investments both domestically and internationally since June, with hardware representatives like optical modules, PCBs, liquid cooling, and servers seeing price increases generally exceeding 100%, and many reaching 200-300% [1][2] - Major overseas companies are benefiting from unexpected increases in capital expenditures, with Microsoft reporting $24.2 billion in Q2 capital spending, a 27% year-on-year increase, marking a record high for a single quarter [2] - Domestic semiconductor manufacturer SMIC is gradually expanding its production capacity, contributing to a positive trend in the domestic computing power chain [2] Hardware Market Performance - Since June, representative hardware stocks have seen price increases of over 100%, with some reaching 200-300% [2] - Microsoft, Meta, and Google have all raised their capital expenditure forecasts significantly, indicating strong demand for computing power [2] - SMIC's monthly production capacity has increased from 973,300 wafers in Q1 to 991,300 wafers by Q2 2025, with a Q2 sales volume of 2.3902 million wafers, reflecting a 4.3% quarter-on-quarter growth [2] Computing Power Services - In contrast, computing power service sectors (cloud services, computing power leasing, IDC) have seen price increases generally within 50%, indicating they are significantly undervalued [2] - Alibaba's Q2 capital expenditure reached 38.6 billion yuan, a historical high, with cloud revenue growth accelerating to 26% and AI-related product revenue achieving triple-digit year-on-year growth for eight consecutive quarters [3] - Alibaba has established comprehensive AI capabilities, with ongoing global expansion of its cloud infrastructure and significant advancements in AI model innovation [3] Market Recognition and Future Outlook - The U.S. market has recognized the value of computing power services, with companies like CoreWeave and Equinix expanding rapidly and improving operational efficiency [4] - CoreWeave's collaboration with NVIDIA has allowed it to meet the demand for flexible, scalable high-performance computing resources, validating the computing power leasing business model [4] - Oracle's cloud business is projected to see substantial growth, with total cloud growth rates expected to rise from 24% to over 40% [4] Investment Recommendations - Key investment targets in core computing power include companies like Cambrian (688256.SH), Haiguang Information (688041.SH), and Inspur Information (000977.SH) [6] - For computing power leasing, companies such as Youfang Technology (688159.SH) and Xiechuang Data (300857.SH) are recommended [6] - In the cloud service sector, Alibaba (09988) and Tencent (00700) are highlighted as potential investment opportunities [7] - IDC providers like GDS Holdings (09698) and Runjian Shares (002929.SZ) are also noted for their long-term value potential [7]