China technology_ Smartphone subsidy effects fading out; restate Huaqin and Luxshare as our top picks in smartphone SC. Wed Mar 12 2025

Summary of Key Points from the Conference Call Industry Overview - Industry: China Technology, specifically the smartphone sector - Current Trends: Recent weakening momentum in smartphone demand following a strong initial response to national subsidies implemented on January 20, 2025 [1][3] Core Insights - Subsidy Impact: - Initial demand surge due to subsidies, but recent weeks show a decline in momentum - Discussions about a potential 10% subsidy for high-end models priced above Rmb6,000, though the impact is expected to be limited [1][3] - 2025 Demand Outlook: - Anticipated year-over-year (yoy) unit growth of 3-5% in China, driven more by technical innovation and new model introductions rather than price discounts [1][3] - Supply chain checks indicate healthy inventory levels and stable shipment outlook for OEMs, with Huawei and Xiaomi expected to outperform with over 5% yoy unit growth [1][3] Company-Specific Insights - Top Picks: - Huaqin Technology and Luxshare are reiterated as top picks in the smartphone supply chain [1][3] - Huaqin is expected to benefit from AI infrastructure growth and strong performance in PC/smartphone segments [1][3] - Luxshare is noted for its high exposure to high-end iPhone models and robust growth in the auto/communication sectors [1][3] Financial Metrics - Huaqin Technology: - Current Price: Rmb83.40 - Market Cap: Rmb84,725 million - P/E (2025E): 22.0, P/E (2026E): 18.4 - ROE (2025E): 16%, ROE (2026E): 17% - Expected CAGR for earnings (2024-2026): 26% [8] - Luxshare: - Current Price: Rmb40.55 - Market Cap: Rmb293,023 million - P/E (2025E): 17.1, P/E (2026E): 13.5 - ROE (2025E): 23%, ROE (2026E): 24% - Expected CAGR for earnings (2024-2026): 27% [8] Additional Observations - Market Sentiment: - The overall sentiment in the smartphone market is cautious, with a focus on share gains and business expansion as key drivers for earnings growth [1][3] - Supply Chain Dynamics: - Positive shipment momentum observed in the initial weeks of subsidy implementation, but overall shipment targets for Android OEMs remain unchanged [1][3] This summary encapsulates the critical insights and data points from the conference call, providing a comprehensive overview of the current state and outlook of the smartphone industry in China, along with specific company analyses.