China Equity Strategy_Follow GBA #4_ Transformation under way

Summary of the Conference Call Notes Industry Overview - The Guangdong-Hong Kong-Macau Greater Bay Area (GBA) is undergoing a transformation, shifting from a service-oriented economy back to manufacturing, particularly in high-end and innovative sectors [1][7][14]. - The GBA's nominal GDP reached US$2 trillion in 2024, reflecting a 5.2% compound annual growth rate (CAGR) from US$1.7 trillion in 2020 [1][7]. Key Insights - Growth Drivers: The growth driver is transitioning from the tertiary sector (services) to the secondary sector (manufacturing), with a notable focus on technology and smart manufacturing [2][3][21]. - Sector Contributions: The tertiary sector had gained share in the GBA's GDP over the past decade, primarily due to the financial sector's growth. However, the real estate sector's contribution is expected to decline due to a downturn in the property market [10][14]. - Innovation and Diversification: The rise of smart manufacturing and technology sectors is anticipated to replicate the success seen in China's auto industry transformation, with companies like UBTECH leading the way in humanoid robotics [3][17]. Company Focus: Luxshare Precision Industry - Investment Recommendation: Luxshare is highlighted as a potential tech transformer in the GBA, with a "Buy" rating and a price target of Rmb58.00 [4]. - Revenue Composition: Luxshare's revenue is heavily reliant on Apple, accounting for approximately 75% in 2024E. However, this is expected to decrease to 49% by 2027E as the company diversifies into edge AI, electric vehicles (EV), and high-performance computing [4][24]. - Growth Forecast: Luxshare's earnings are projected to double, with significant growth in its auto and communication segments, forecasting a 20% and 43% revenue CAGR respectively from 2025 to 2030 [24]. Economic Projections - The GBA's nominal GDP is forecasted to reach US$2.1 trillion by 2027E, with growth expected to decelerate in line with the overall Chinese economy [1][7]. - The secondary sector is anticipated to regain share in the GBA's economy, driven by advancements in manufacturing capabilities and the development of a global EV supply chain [14][17]. Risks and Considerations - Key risks for Luxshare include weaker-than-expected demand in downstream markets, particularly in consumer electronics and automotive sectors, as well as potential challenges in new product introductions impacting gross margins [30]. Conclusion - The GBA is positioned for a significant transformation with a shift back to manufacturing, presenting long-term growth opportunities, particularly in technology and smart manufacturing sectors. Luxshare is identified as a key player benefiting from this transition, with a strong focus on diversifying its revenue streams away from reliance on Apple.