January 12, 2025 11:10 PM GMT Investor Presentation | Asia Pacific M Foundation Policy Undershoot Unless Social Dynamics Evolve Morgan Stanley Asia Limited • Insufficient monetary easing leads to financial market instability or worsens deflationary pressure Robin Xing Chief China Economist Robin.Xing@morganstanley.com +852 2848-6511 Zhipeng Cai Economist Zhipeng.Cai@morganstanley.com +852 2239-7820 For important disclosures, refer to the Disclosure Section, located at the end of this report. Foundation M In ...

Industry Overview * **Global WFE Spend**: The global wafer fabrication equipment (WFE) spend is expected to reach $95 billion in 2025, a decrease of 5% year-over-year. This is primarily driven by a decline in mature logic and industrial/auto demand, offset partially by leading-edge AI investments and HBM investments in DRAM. * **Market Segmentation**: The WFE market is segmented into logic (foundry + IDM) and memory. Logic is expected to grow by 13% year-over-year, while memory is expected to decline by 38%. * **Key Players**: The "Big Three" (TSMC, Samsung, and Intel) account for approximately 65% of the global WFE spend. TSMC is expected to be the largest spender, followed by Samsung and Intel. TSMC * **2025 CapEx**: TSMC's 2025 capital expenditure (CapEx) is expected to be higher than $40 billion, slightly higher than the Street's consensus of $35-$38 billion. * **Growth Drivers**: TSMC's CapEx is expected to increase throughout the year due to improving non-AI semiconductor demand. * **Valuation**: Citi's target price for TSMC is NT$1,540, based on a 23x multiple of its 2025-26E average earnings per share (EPS). Samsung * **2025 CapEx**: Samsung's 2025 CapEx is expected to be similar to 2024, with a flexible approach to managing it. * **Valuation**: Citi's 12-month target price for Samsung is W83,000, based on a sum-of-the-parts (SOTP) methodology. Intel * **2025 CapEx**: Intel's 2025 CapEx is expected to be $20-$23 billion, lower than the Street's consensus of $24 billion. * **Risks**: Intel faces risks related to PC end-market demand, competition, customer risk, and macroeconomic conditions. * **Valuation**: Citi's target price for Intel is $22.00, based on a 26x multiple of its 2025 estimated EPS. Other Key Points * **KLA Corp**: Citi has a Buy rating on KLA Corp, with a target price of $832 based on a 30x multiple of its 2025E earnings. * **Nova Ltd**: Citi has a Buy rating on Nova Ltd, with a target price of $240 based on a 31x multiple of its CY26 EPS. * **Overall Rating**: Citi has a Buy rating on the semiconductor equipment industry, with a focus on large cap and SMID cap names such as KLAC and NVMI.

Summary of Key Points from the Conference Call Industry Overview - The focus is on the **Chinese equity markets** and the broader **economic policies** impacting them, particularly in the context of monetary and fiscal policies amid external pressures. Core Insights and Arguments 1. **Economic Data and Policy Outlook**: The Chinese equity markets have started the year poorly, reflecting a cautious outlook on reflation and the impact of external monetary constraints on sentiment [2][3][5] 2. **Monetary Policy Constraints**: The People's Bank of China (PBoC) is facing challenges in balancing currency stability and monetary policy flexibility due to diverging economic fundamentals with the US, leading to a constrained monetary easing environment [3][4] 3. **Expectations for Rate Cuts**: A modest rate cut is anticipated, with expectations of a 15 basis points cut in the 1Q and 10 basis points in the 3Q of 2025, alongside a projected USDCNY target of 7.60 by year-end [4] 4. **Fiscal Policy Limitations**: The fiscal response to tariffs is expected to be data-driven rather than announcement-driven, with a modest Rmb2 trillion fiscal expansion for 2025, which may not be sufficient to stimulate the economy [10] 5. **Housing Market Concerns**: The housing market remains under pressure due to a lack of supportive policies for property developers, leading to a projected contraction in housing investment by 10% year-on-year in 2025 [11] 6. **Social Dynamics Indicator**: The Social Dynamics Indicator has stabilized, but further policy pivots may depend on shifts in social dynamics and economic data, particularly in response to tariff impacts [7][12] Additional Important Points 1. **Investor Sentiment**: There is growing skepticism in the market regarding the effectiveness of fiscal and housing policies, which are seen as insufficient to support a reflationary environment [5][11] 2. **Potential for Future Stimulus**: A third round of stimulus may be introduced if economic data worsens, focusing on consumption and social welfare reforms [12] 3. **Capital Outflow Risks**: There are concerns about self-fulfilling capital outflows that could be difficult to manage, reminiscent of past currency crises [3] This summary encapsulates the critical insights from the conference call, highlighting the challenges and expectations for the Chinese economy and its equity markets in the context of current monetary and fiscal policies.

Summary of Key Points from the Conference Call Industry Overview - The conference call focuses on the **Hong Kong/China Insurance** industry, particularly the impact of interest rate mechanisms on pricing strategies within the sector [1][4]. Core Insights and Arguments - **Floating Pricing Interest Rate Mechanism**: The introduction of a floating pricing interest rate mechanism is a significant development. The suggested pricing interest rates will be released quarterly by the IAC, considering the 5Y LPR, 5Y term deposit rate, and 10Y treasury bond yield [2][7]. - **Current Pricing Rates**: Major insurers, including **China Life** and **Ping An Life**, have announced that they will maintain their current pricing interest rates for traditional products at **2.5%**, par at **2.0%**, and universal life’s guaranteed rate at **1.5%** [2][3]. - **Interest Rate Spread Loss Risk**: The industry is currently facing a key concern regarding interest rate spread loss risk, as China's 10Y treasury bond yield has decreased to approximately **1.6%**, down over **100 basis points** since mid-2023. This decline has prompted regulators to cut pricing interest rates by **100 basis points** [3][4]. - **Impact on Insurers**: With the strong growth in par products, it is anticipated that insurers' interest rate sensitivity may decline further in the full-year results for 2024 and beyond. However, the resolution of this issue may take time [3][4]. Additional Important Information - **Regulatory Changes**: The CBIRC has established a dynamic adjustment mechanism for pricing interest rates, with the first suggested rate cap set at **2.34%** for Q1 2024. Insurers are required to adjust their caps if current caps are more than **25 basis points** higher or lower for two consecutive quarters [7]. - **Market Outlook**: The overall industry view remains attractive, indicating potential for growth despite current challenges [4][5]. - **Investor Tracking**: The new floating pricing interest rate mechanism allows investors to easily track new inflow profitability, although the downward trend in inforce business liability costs is a critical factor to monitor moving forward [7]. Company Ratings - The report includes stock ratings for various companies in the insurance sector, with notable ratings such as: - **AIA Group Ltd**: Overweight - **Ping An Insurance Group Co of China Ltd**: Overweight - **China Life Insurance Co Ltd**: Equal-weight - **China Pacific Insurance Group Co Ltd**: Overweight - **PICC Group**: Overweight [56]. This summary encapsulates the essential insights and developments discussed in the conference call, providing a comprehensive overview of the current state and outlook of the Hong Kong/China insurance industry.

Summary of Key Points from Goldman Sachs Global Economics Comment Industry Overview - The report focuses on the potential impact of tariffs on inflation and Federal Reserve (Fed) policy in the context of the U.S. economy, particularly under the Trump administration's anticipated tariff announcements on China and European autos [2][3]. Core Insights and Arguments - **Tariff Impact on Inflation**: The baseline forecast anticipates a 3.4 percentage point increase in the U.S. overall effective tariff rate, which is expected to raise core Personal Consumption Expenditures (PCE) inflation by approximately 0.3 percentage points over the next 12 months [2]. - **Fed's Reaction to Tariffs**: The report questions whether the Fed will adopt a hawkish stance in response to tariff-driven price increases, noting that historical data provides limited insight due to few instances of tariff increases in modern economic history [3][4]. - **Value-Added Tax (VAT) Analysis**: The analysis uses data from over 70 VAT changes in developed markets (DM) to estimate inflation and policy responses, finding that a 1 percentage point VAT increase raises year-over-year inflation by 50 basis points for the next 12 months, with no significant long-term impact [6][7]. - **Central Bank Responses**: Historical evidence suggests that central banks have not responded hawkishly to one-time price increases driven by VAT changes, indicating a potential similar response to tariff-driven inflation [8][11]. - **Inflation Overshoot Concerns**: Despite concerns that recent inflation overshoots could lead to a more sensitive central bank response, the report finds no evidence of policy adjustments in high inflation periods following VAT increases [10][12]. Additional Important Points - **Expectations for Fed Policy**: The report concludes that the Fed is unlikely to raise rates in response to moderate inflation from tariffs, predicting a 50 basis point cut in 2025 and an additional 25 basis points in 2026 due to ongoing progress on underlying inflation [12]. - **Caveats in Analysis**: The analysis acknowledges that most VAT increases occurred in a post-2000 period of relatively benign inflation, which may not fully capture the current inflationary environment [10]. This comprehensive analysis provides insights into the potential economic landscape under the influence of tariffs and the Fed's likely policy responses, emphasizing the historical context of VAT changes as a parallel to understand tariff impacts.

Haier Smart Home Co. (600690.SS): Consumer & Leisure Corporate Day: High-end leading domestic improvement, focus on tariff; Buy 10 January 2025 | 4:28PM CST We hosted Haier Smart Home's management for a virtual meeting at the Consumer & Leisure Corporate Day on Jan 10. Key takeaways include: 1) Management commented revenue growth accelerated to DD% in 4Q mainly driven by domestic sales recovery (10%+ growth) supported by trade-in program, while overseas organic growth was largely stable vs previous quarters ...

Summary of AAC Technologies Holdings (2018.HK) Conference Call Company Overview - **Company**: AAC Technologies Holdings (2018.HK) - **Industry**: Technology and Telecom Key Points from the Conference Call 2024 Revenue Growth - **Revenue Growth Target**: 30% YoY growth expected for 2024, including PSS consolidation [2] - **Operational Efficiency**: Operating expenses (Opex) growth is lower than revenue growth [2] - **Business Performance**: Several business segments performed better than expected [2] 2025 Revenue Outlook - **Revenue Growth Projection**: Expected to grow by 10-15% YoY with a gross margin (GM) target of 22-25% [3] - **Smartphone Market Growth**: Anticipated mid to low single-digit percentage growth in the smartphone market, with segments priced at US$300 and US$600+ expected to grow above market average [3] Product Upgrades and Innovations - **Key Upgrade Trends**: Focus on heatsink, microphone, and thin/light design in acoustic/haptic technologies, as well as high-end optical solutions like 7P and WLG hybrid lenses [1][3] - **AI Smart Glass**: Collaboration with AI smart glass customers on microphone technology, with potential for speaker integration in the future [4] Manufacturing and Capacity - **Manufacturing Footprint**: Long-term plan to allocate manufacturing capacity 50% in China and 50% outside China over the next 5-10 years [5][8] - **Vietnam Facilities**: Manufacturing facilities in Vietnam account for 10-20% of total capacity, primarily serving Korean customers [5] Financial Metrics - **Current Share Price**: HK$35.85 as of January 10, 2025 [6] - **Target Price**: HK$41.00, indicating an expected share price return of 14.4% and a total return of 14.8% [6][12] - **Market Capitalization**: Approximately HK$42,830 million (US$5,500 million) [6] Risks and Challenges - **Downside Risks**: Potential risks include worse-than-expected demand, slower product ramp-up, and staggered margin improvement [13] Share Buyback Program - **Share Buyback Announcement**: A US$100 million share buyback program was announced, which may be used for employee options rather than cancellation [9] Currency Impact - **RMB Depreciation**: The company believes the impact of RMB depreciation is limited due to a natural hedge between overseas business contributions and USD debts [10] Additional Insights - **Optics Business Growth**: The optics business is expected to achieve 30% YoY growth, with 5P+ lenses accounting for 70% of plastic lens shipments [2] - **Heatsink Supply**: AAC is a major heatsink supplier for domestic flagship smartphones, holding over 50% market share [2] This summary encapsulates the key insights and projections from the conference call, highlighting AAC Technologies Holdings' growth strategies, market outlook, and operational efficiencies.

12 January 2025 | 2:43PM HKT Asia Credit Notes: HK Property Credits Mostly Sound, But Tail Risk Concerns Linger HK property IG credits have underperformed. HK property sector has been an underperformer in Asia IG over the past 12 months. Using the ICE-BAML Asia Dollar index, we note that spreads for HK A-rated Property credits used to trade in line with Asia A Corp, but began diverging in late 2023. Currently, spreads for HK A-rated Property sector are at 67bps, and are 10bps wider than Asia A Corp spreads ...

Summary of the Conference Call on US Semiconductors Industry Overview - The conference call focused on the US semiconductor industry, particularly the DRAM market, and its performance in the PC and cell phone sectors [1][7]. Key Points Demand Trends - Demand in the PC supply chain is reported to be sluggish, which is a mild negative for companies like AMD (28% of sales), Intel (55% of sales), and Micron (15% of sales) [2][8]. - In contrast, demand in the cell phone supply chain appears stable, which is a mild positive for Qualcomm (QCOM), where 74% of sales are derived from this segment [3][10]. DRAM Inventory Levels - DRAM inventory in the PC supply chain has declined and is nearing optimal levels, having decreased from a peak of 15 weeks to approximately 10 weeks, with normal levels estimated at around 8 weeks [3][9]. - However, DRAM inventory in the cell phone supply chain remains elevated compared to PCs, indicating a potential for normalization by spring [4][11]. Pricing Expectations - The expectation is that DRAM inventory will normalize by spring 2025, with DRAM pricing anticipated to stop declining starting in the second quarter of 2025 [4][12]. Investment Recommendation - The recommendation to maintain a Buy rating on Micron Technology Inc. is reiterated, with a price target set at $150, which reflects an 11X F26E EPS, slightly above its historical average but below AI peers [5][14][17]. Risks Identified - **Supply/Demand Dynamics**: The memory industry is sensitive to the alignment of supply with demand. Excess supply could lead to inventory reductions and lower pricing, negatively impacting Micron's estimates [18][21]. - **Pricing Pressure**: Any price reductions by Micron or competitors could lead to lower contract and spot pricing, adversely affecting estimates [19][21]. - **Capacity Management**: Increased manufacturing capacity without corresponding demand could result in excess supply, leading to lower pricing [20][21]. - **Competition**: Micron faces competition from major players like Samsung, SK Hynix, Toshiba, and Western Digital, which could impact market share and estimates [21]. Additional Insights - The call highlighted the importance of monitoring inventory levels and pricing trends in the semiconductor market, particularly as the industry approaches a potential recovery phase in 2025 [1][12].

Summary of China Auto Manufacturers CPCA Expert Call Takeaways Industry Overview - **Industry**: China Auto Manufacturers - **Key Expert**: Mr. Cui Dongshu from China Passenger Car Association (CPCA) Core Insights and Arguments 1. **2025 Old-for-New Subsidy Expansion**: - The scope of the old-for-new subsidy will expand to include gasoline vehicles registered before June 30, 2012, potentially driving 1.2-1.8 million incremental unit sales in 2025 [1][3] 2. **Demand Pull Forward**: - Demand of 1.0-1.6 million units has been pulled forward from the first half of 2025 to the second half of 2024 due to policy changes [1][4] 3. **January 2025 Sales Forecast**: - Expected decline in January 2025 retail sales by 20% YoY, with a 40% MoM drop observed in early January [1][5] - NEV wholesale volume is projected to drop 40% MoM to approximately 900,000 units, but still show a 30% YoY increase [1][5] 4. **2025 Sales Growth Projection**: - FY25 sales are expected to grow by 2% YoY, with a strong rebound anticipated in the second half of the year due to the full execution of the old-for-new policy and a halving of NEV purchase tax exemptions starting in 2026 [1][7] 5. **2024 Sales Performance**: - FY24 retail and wholesale volumes grew by 5.5% YoY, reaching 22.9 million and 27.2 million units, respectively, exceeding earlier forecasts [1][8] 6. **December 2024 Sales Trends**: - December 2024 retail sales reached 2.64 million units, a 12% YoY increase, but still below the historical peak of 2.75 million units in 2017 [1][9] - NEV wholesale volume in December 2024 was 1.51 million units, a 36% YoY increase [1][9] 7. **Pricing Trends**: - December 2024 pricing remained stable with average discounts of 9% for ICE vehicles and 8.9% for NEVs [1][11] - Price competition is expected to intensify in 2025, particularly among domestic brands leveraging PHEV cost advantages [1][12] 8. **Competitive Landscape**: - Traditional automakers like BYD, Geely, and Changan are expected to lead in volume growth, while NEV startups may face challenges due to a lack of PHEV models [1][14] Additional Important Insights - **Subsidy Impact**: The total subsidy for the old-for-new program is estimated at RMB 60-70 billion, with local trade-in volumes outperforming expectations [2][3] - **Production Adjustments**: Leading OEMs intentionally scaled back production in December 2024 to prepare for moderate growth in FY25 [1][10] - **Market Sentiment**: Consumer purchasing power and confidence appear weaker compared to previous highs, impacting sales performance [1][9] This summary encapsulates the key points from the expert call regarding the current state and future outlook of the China auto manufacturing industry, highlighting both opportunities and challenges.